Subject: Re: Unite Group (UTG), UK, falling knife.
Hello, thank you for the interesting posts.

I do not agree with everything you've written, and unfortunately I don't have time this week to go through line by line and explain why. There are many good points in there though. However, in the media and elsewhere, there are things that are future risks, possibilities and proposals (for example the international student levy) that are presented as done deals, despite being still at the proposal stage and having already changed considerably from their first proposal.

To respond briefly,

- Sometimes, adding more information beyond the most essential factors makes decision-making outcomes worse. Signal/noise.

- UK REITs have well established and realistic means to evaluate the achievable NAV on properties, using generally agreed upon e.g. EPRA standards for reporting. External valuers are often used to keep numbers realistic. (Office REITs in the UK got 'shocked' by covid and remote, so that this system broke down for certain REITS with heavy exposure to offices. Generally though, prime properties are assumed to get prime prices and weak properties to get weak prices in calculation of NAV. It's important to ask 'are they selling off the very best stuff to stay afloat' - because that does happen sometimes with REITs - but usually that's a problem for much smaller REITs, or REITs operating in places where demand for a certain kind of property has simply evaporated and there are limited market transactions/rents to draw clear conclusions from.

- Where PBSA housing is excess to need, I agree that not all student buildings can be turned into 'ordinary homes' very easily, but for example the overlap between hotel and student accomodation is so great that many student accomodations are listed in booking.com outside of term time. Likewise, emergency social housing and unused student accomodation can be an easy and immediate fit too. I mean, we're using private hotels and military accomodation for that purpose at the moment in the UK because there's such desperate need for rooms. And some student housing really can be directly turned into blocks of residential flats given appropriate permission, design/redesign etc.

- I think the NAV 955p, price 500p, issue along with the questions 'will the dividend be maintained and covered' and 'is the debt manageable or a danger', are the three key issues in determining if the company is good value, more than social trends or politics. If I wanted to invest at a price of 800p-900p, I would absolutely be thinking about some of the topics you mention, but at 500p, I'm not.

- the buyback dynamic upon NAV at low PTBV with REITs is unusual and important vs other types of companies.

- Student property arguably has many tiers, depending on how you view it. For example, https://www.unitegroup.com/wp-..., slide 17.

- 95% occupancy is an extremely robust, successful number for most REITs. If Unite can hold occupancy there while managing costs, it will be a big success.

- It's worth looking at https://www.unitegroup.com/wp-..., slide 13, to get an idea where the 'problem' is with occupancy, to determine how addressable it is.

- You cannot buy a good share at a great price unless there is a temporary whiff of fearful speculation about the future around it, along with some genuine concerns. It is too much to expect a great price and a great outlook. Almost never happens.

- The trend of the cost of debt upwards is not good for any REIT anywhere in the world! (or any company, except banks). Unfortunately, with REITs you essentially have to take some view on the likely path of future debt costs. You can see in 2022 what happens when beliefs and numbers change fast around debt costs. At 10% rates, REITs are awful. If we see 0% rates again, they will be amazing. The 10x demand for Google's 100-year bond @ 6% might suggest down is more likely than up. But the talk of war might suggest the opposite. I don't know.

- UK 5 year govt gilt yields were 4.4% last April, 4.2% in October and now they are 3.8%. Which suggests to me that medium term borrowing is going to get cheaper for REITs. The 10Y has went from 4.8% in September to 4.3%.

- Demographic trends are surprisingly good imho, and things like Erasmus and warming Chinese relations and an exodus of students from the US need to be taken seriously as matters affecting demand. Erasmus students don't stay with mum and dad.

- If you take a look at the link below, page 14, some arguments for 'Empiric properties will do better under Unite' are made there.

https://www.unitegroup.com/wp-...

TRS.