Subject: Re: Unite Group (UTG), UK, falling knife.
Hello TheReitStuff,

I bought some Unite and Empiric back in June, when I thought they were reasonably priced but a good inflation hedge over the long term and less risky than many equities around the world. I wrote about it here.

https://www.shrewdm.com/MB?pid...

Nothing out of line with what you are saying, other than now Unite is 30% cheaper! It looks a lot more attractive now with a price to book of 57% and a 6.5% dividend yield and a 7.8% earning yield. (I'm reading these numbers of my June spreadsheet with up to date market prices but they might have had earnings published since, so the numbers might be marginally better than this.)

I was first attracted it to it, when looking for student accommodation for my son. We only looked at one or two cities but there is definitely a shortage of student accommodation in the UK. I agree the UK might benefit from more demand, that might have otherwise gone to the USA.

The only challenge I would make to your article, is the quality of the assets. The are high quality but if there was a major drop in university demand (and I don't think that is on the cards), I would expect them to be hit quite hard. I get the impression the properties are high density student properties that would be expensive to convert to something else. But yes, the properties would still have value. I don't see much evidence that student numbers will drop off, so that's not a problem currently. (However, it is getting very expensive to go to university and there may be less jobs for graduates in future. You could certainly make a case that it would make financial sense for a lot of youths, to learn a trade and avoid student debt and the risk of being unemployed in the new AI world. But its a hard enough sell to an 18 year old to learn a trade and many are not suited to it. Then again, maybe the AI use cases are only beginning to become apparent. Maybe university demand will soften. I don't know.)

I'm not sure why the stock has fallen so hard, over the last few months. Probably because I bought it! Base rates have been falling but maybe the type of borrowing they do has gotten more expensive. I suppose the point is that the loans they secured during the low covid rates will be refinanced at higher rates. I haven't looked at that too closely.

The current discount to book value is very attractive in my opinion. To be able to buy a property asset, in an inflationary environment, at a sale price, when there is a shortage of property and growing population is interesting. This is not some crappy REIT with low quality assets. They are quality operators, with high occupancy rates and as you say, deep links with the UK's leading universities. And they are growing.

Looking at my spreadsheet again, another way to look at valuation, is the market cap you are paying per bed. It's £40,487. That's cheap. If you go out into the UK 'buy to let' market and try to buy a property, not only would you be paying a lot more than that, you would be paying a lot of tax on the rental income, unlike Unite with its REIT status. I agree it's a buy, based on my limited knowledge and lack of expertise. I just wish I had waited a few months for this price...

Thanks for your report. I enjoyed it.

EVBigMacMeal