Subject: Re: Unite Group (UTG), UK, falling knife.
I think the market is just 'wrong' on UTG here.

I'm going to imitate Jim a little and pound on the table a bit (as well as having put actual pounds on the table).

UTG dumping while every other big REIT in the UK goes up is just... wrong.

I don't know why this price is prevailing lately, but it should not be so.

I suppose you could construct a convoluted argument in which other big REITs don't have risks...

- "The AI bubble that's fueling REIT datacenter builds definitely won't go pop!"

- "The UK government definitely won't change the rules on inflation linked contracts for health care/social care rentals!"

- "UK residential property definitely won't dump, even though net migration rapidly flipped from +1m/year to +200k/year!"

- "UK high street retail is essentially risk free, even though younger generations have no money to go shopping!"

And I suppose you could construct an argument whereby the REITs loaded to the eyeballs with debt are 'better' if rates drop (which might even be true).

And I suppose you could argue that higher education has troubles ahead; it certainly does; it always does.

But at the current price, as far as I am aware:

- UTG has the best dividend cover among big UK REITs*.

- UTG has the best underlying earnings yield among big UK REITS*.

- UTG has the best discount vs net asset value, I think among all big UK REITs.

- UTG has relatively low, managable debt, versus other large peers (LAND, BLND, PHP) and currently identical to the best in class of the big UK REITs. (Historically, UTG _are_ the best in class for achieving good earnings/nav growth with low debt among big UK REITs.)

- UTG has made a relatively small acquisition compared to recent acquisitions by the other UK REIT biggies (e.g. BBOX, LMP, PHP).

- In fact, if you net out the effects of £150m asset sales this year, and £300-400m asset sales next year, vs the acquisition price of Empiric (£630m), it begs the question whether they have actually acquired much at all, in aggregate. Did they just devour their biggest competitor and throw the pieces away?

- I mean, June 4th this year, the day before they bid for Empiric, the share price was 850p. It's now 526p. We are talking about a £4000m mcap company, picking up £100-200m of assets in aggregate, consuming their only real competitor, then being punished for it by losing £1600m of market value. While in the background, net assets/share grow, LFL rental grows, etc. Eh?

- No other REIT in the UK is closer to an effective monopoly in its subsector than UTG.

- I don't think there's any large REIT with a better track record on NAV growth in the last 4 years.

Honestly, it's just... bizzare. Totally weird.

I mean, this REIT is such good quality it used to trade on a yield of 1.5% just a couple of years back! Now it's almost 8%.

And what changed to ruin that? Occupancy went from peak at 97% to 95%? (As rents went up, NAV went up, dividend went up, earnings went up... ?)

Well anyway, pound, pound, upon the table. This is a great REIT and a great price. The market is wrong.

And it appears, from the sudden mention of buybacks for the first time recently in the company announcements today, Unite are preparing to exploit the market's mistake themselves, as an opportunity to grow even faster.

How important might that be? You'd be surprised.

A buyback of 10% of a hypothetical company A at a 10% discount to net assets, produces roughly a 1% advantage to the net assets/share.

But with UTG, we have almost a 50% discount to net assets (500p ish vs 1000p ish). If they sell £400m of assets as scheduled, and used much of it to buyback with the mcap at £2.4bn as it is, that's a buyback of up to 16% of the market cap (!)

50% x 16% = 8% improvement in net assets/share! (ish)

Regular earnings might be impacted by all this buying and selling, as they note, but it potentially could double shareholder gains from ~8% / year from rent/non-rent to ~16%/year total if the UTG price stays as low as it is and asset values stay as high as they are.

Sometimes a bargain hides in plain sight right in front of you.

All numbers are approximate, all calculations back of an envelope, in the above text. All IMHO, do your own research, and so on.

If I'm wrong on any claim I made above, please, point it out, I'll be grateful.

TRS

* depending on how you define 'big', there's SOHO REIT, but SOHO has been 'troubled' to say the least in recent years.