Richard Smith, chief executive of student accommodation provider Unite (UTG), is stepping down at the end of the year, leaving the FTSE 100 constituent with record rental growth and a considerably larger portfolio.

Smith has been at the £3.8bn trust for 13 years and in the top job since 2016, during which it has grown to 157 properties across 23 university towns and cities, providing accommodation to over 70,000 students, and graduating onto the blue-chip index last year.

The portfolio, which is made up of two funds, the Unite UK Student Accommodation fund (USAF) and the London Student Accommodation Joint Venture (LSAV), has secured rental growth of 7.3% for the current academic year, more than double last year’s.

This is driven by demand for purpose-built student accommodation outstripping supply following the departure of traditional house for multiple occupation (HMO) landlords from the sector.

Unite has also benefited from nomination agreements, which have exceeded direct-let tenancies, as university ‘partners’, of which it has over 60, agree increased rental levels on single and multi-year deals, which should support growth of at least 5% next year, a third-quarter trading update said.

Smith is stepping down at the end of the year to pursue his interest in supporting the education and development of young people, including understanding issues that affect mental health, and will remain as an adviser until next June.

Chief financial officer Joe Lister will step up to the top job, with current group investment director Michael Burt filling the CFO role.

Stifel analyst Sam King was surprised by the news, given the significant growth that has been achieved at the company under the 49-year-0ld Smith’s stewardship, including the transformative acquisition of Liberty Living, which it bought for £1.4bn in 2019.

In what has been a volatile year for FTSE fat cats, Unite Group is the 23rd blue-chip company to announce a new chief executive starting this year or next, the second highest this century, lagging only 2020, according to AJ Bell.

‘On behalf of the board, I would like to extend our sincere thanks to Richard and acknowledge his significant achievements over the last eight years as chief executive,’ said chair Richard Huntingford. ‘He has been a driving force behind our successful strategy of aligning to the best universities where demand is highest and building Unite into a purpose-led, responsible business.’

The third-quarter update noted the portfolio had an occupancy rate of 99.7% for the current academic year to mid-2024, up from 97.9% last year, while ratings agency Moody’s upgraded United’s unsecured credit rating to Baa1 from Baa2.

This reflects the positive impact of a £300m share issue in July and commitment to a reduced 30% loan-to-value target, with a net debt to pre-tax profit ratio of 6-7 times.

In line with government regulations, Unite continues to progress with cladding remediation across the estate and will complete 15 projects during 2023. The expected cost of remediation projects in 2023 is £80m, with Unite contributing £41m, which was fully provided for at 31 December 2022.

The USAF portfolio was valued at £2.9bn at quarter end, a 0.2% increase, driven by rental growth and a nine-basis point (0.09%) increase in property yields. The portfolio comprises 27,922 beds in 71 properties across 19 university towns and cities in the UK.

The LSAF portfolio, which includes 9,716 beds across 14 properties in London and Birmingham, was valued at £1.9bn, a 0.2% quarterly decline. Despite the same rental growth and increase in property yields, its valuation fell because of its lower yield of 4.3%, versus USAF’s 5.2%. 

Stifel’s King noted that these are among the most resilient valuations in the property sector. He gave a ‘buy’ recommendation, with a target price of £11, assuming the shares trade at a 25 times forward price to earnings.

The shares climbed 1.5% to 894p, below the 945p placing price in July and up just 4% over five years.