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

I'm sorry but I don't agree with most of what you posted this morning, and I hope that by the end of this reply, you won't agree with yourself either :-)


>"UTG had a target of 97% occupancy and missed this by a few % in recent reporting"

I feel this sentence, as written, is misleading.

UTG has a target for *final* levels of occupancy in the current year around 97%. The previous year *final* occupancy was 97.5%.

In the October trading statement, they said they were *currently* at 95.2%. The trading statement does not say 'these are the final figures for the year', it says, "As we enter the final stages of the sales cycle".

Put differently, it's Thursday afternoon at the end of the month at the car dealership.

I'm an former academic myself who studied in the UK. During my degrees, I spent about 6 years living in halls of residence, and I became involved with helping the running of more than one of the halls. It was very common for halls to continue to fill up rooms weeks and months after the start of term. Even back in those days when housing in town was plentiful, whereas today it's more common to see students desperately camping in tents on lawns for weeks after term starts in hope they can find somewhere to stay.

The trading statement actually indicated the sales situation *improved massively* from the previous trading statement in June. In June they had sold 88% of rooms, whereas in the previous year it was 94% sold by that point. (6% behind 2024). In October, they had sold 95% of rooms (and still ongoing, but running out of time), whereas in the previous year it was 97.5% at the end as the final figure.

You can review the wording in the two statements here:

https://www.londonstockexchang...

https://www.londonstockexchang...



2. >"they are acquiring empiric which only has an 84% occupancy"

But this is not 'October 6th News'; the track record of Empiric and the price/value of the acquisition was fully known and essentially certain to go ahead in the vote.

The 'October 6th surprise' was how many were unenthusiastic about the bid and voted no. That was a big blow to sentiment and narrative.

About occupancy, as far as the deal goes, Unite point to this bid as 'the buildings' rather than 'the company' by their focus on the NRV and debts they acquire with the deal in their presentation. The logic is that they take on Empiric's buildings (20% less than they could build it for themselves). I can't recall offhand, but I think Empiric's debt they take on is also a bargain - a better rate than they would get today (5 years, 4.4% I think? versus e.g. SUPR REIT taking on debt at 5 years, 5.0% recently).

So, it is probably not a good time to be an Empiric employee.

To give a further example of why Empiric's occupancy figure doesn't matter (even if it had been announced on Oct 6th! Which it certainly wasn't. It's been known for years).

Empiric's brand focussed on 2nd year+ returning students. Unite focusses on 1st year students. It's much harder to get 2nd years to stay in hall, they want to run free in the wild, hence the lower occupancy.

If you own both buildings, and you get a lot of 1st years and not enough 2nd years some year, or vice versa depending on e.g. local housing and housing demand... it's a very easy to solve problem within a single company and single booking system. Take excess students from building A, offer rooms in building B.

You get synergy not just from Unite sacking staff that are duplicating the same business function / 'scale', you also get synergy from being able to balance different types of demand and overflow at halls between year groups, as well as potentially being able to keep students 'within your system' for as long as possible.

At one point, I stayed in a particular hall of residence, four years in a row. Why? Because I had friends there and they stayed too. Being able to enable this kind of thing adds business value.

I think Empiric's past occupancy numbers are not relevant; they won't be selling or operating those rooms any more. It's just some buildings, and we have a good idea of how well Unite fills rooms in buildings compared to Empiric.

Think of it this way. Two companies might operate the same hotel or restaurant building in different time periods, yet achieve totally different levels of occupancy, profitability, and satisfaction. And we have a good idea of how efficiently and successfully Unite Group runs its assets.

Similarly, if a company operates two restaurants nearby, and one restaurant is overflowing while the other is empty, they can offer to seat guests at the second restaurant with some free drinks, and make the best use of their assets.


3. >"The dividend may also be cut"

May I ask, where exactly are you getting this claim from? Because it does not sound plausible at all.

I know for a fact there's nothing in any company announcement that would suggest it, and the finances of the company also don't point that direction.

Unite's dividend is covered 1.24x, which I think is the *highest*, *safest* level of dividend cover for any UK REIT.

SEGRO, the prima donna of the UK REIT sector, achieved 118% dividend cover in 2024. (https://www.segro.com/investor...)

But almost all other UK REITs are scraping by on 100% dividend cover. SUPR (the supermarket REIT) is running slightly below 100%. Regional, Target Health, SOHO REITs all fell well below recently.

Whereas Unite? Earnings of 46.6p in 2024, and a dividend of 37.3p. That's dividend cover of 124.3%!

This is possible because they make money 'on the side' from non-rental operations as well as reserving the maximum 10% of the rental income permitted each year. Whereas most other UK REITs run it very, very close to the line.


4. The Empiric purchase is a *small* competitor, around 1/8 to 1/10 the size of Unite. Bought at a bargain price.

Consider, the bid was announced first on May 7th 2025. Unite's share price the day before was 867p, for a market cap of £4.2bn. At the low of 550p this week, the market cap was £2.7bn. That's a drop of £1.5bn.

The Empiric bid had a maximum value at £719m mid year. I just don't see how buying £900m of net assets for a price of £719m, destroys £1500m of company value.


5. When a price dumps, people sometimes talk themselves into imagining things that may be wrong. (Nowadays, they may even be assisted in that effort by hallucinating chatbots, which are beginning to plague finance board discussions, as they will play along with whatever idea you ask them to). I think it's better to focus on discovering if something *is* actually wrong, as a question of facts or fact-informed probabilities. A drop is only a bargain if there's no equally sized justification for it. Some drops are triggered by true loss of value, but some are just triggered by the general mood of investors, narratives they believe. For example look at TSMC or NVIDIA in 2022 and look at them today.