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

Could I make a couple of points relating to your post, including a correction to the dividend yield figure?

Plus I'd like to share a variety of general interest REIT comments that you might already know, just while I have an excuse to talk about it. (This isn't directed at you personally, it's mostly just a ramble.)

None of what I am about to write below should be considered authoritative. It is NOT advice in any way. As always, I encourage everyone to double check anything that seems important or interesting for decision making.

> "within rounding error back at the lowest price in 11 years. Yield before tax 5.79% based on trailing year payout."

Regarding 'lowest price in 11 years'. Some REITs change form considerably over time, even becoming totally different kinds of business in a different sector within the space of a decade. Some REITs pay out 100% of income as dividends, others retain a little earnings to grow the company (or shrink it, I suppose, in the case of buybacks). Some REITs do lots of rights issues (yuck), others not so much.

Some REITs build the properties they rent, some REITs acquire properties, some REITs acquire other REITs, fractionally or in whole. I hear you can get spicy MBS-filled CDO-nightmare-fuel REITs in the USA, but I'm only interested in the normal/sane 'owns property, rents it out' kind of REITs.

Some REITs totally change their character even within a couple of years. For example NewRiver REIT owned 200 pubs I think in 2013, then 700 pubs in 2020, then 0 pubs in 2021. One of the picks you've highlighted before, LandSec, is another interesting example. It's been selling off its offices (perhaps near a secular low, hmmm) to move into residential letting (perhaps near a secular high, hmmm). British Land, used to be offices and high street and business campuses, now they run a lot of retail parks. And so on.

Unite Group for example operated lots of cheap beds in the past at many universities, and now it operates less beds at fewer universities but with higher prices and hopefully better long term occupancy levels. That has a big impact on the business outlook, especially today. (In fact this particular business pivot is looking increasingly wise, with hindsight.)

REITs such as Safestore or Big Yellow (short term storage) could make extra money from value add such as charging to access the storage at strange times of day, selling you padlocks, etc. Even in the logistics 'big box warehouse' sector you have some companies that are purely 'rent a warehouse' and others like Segro/Tritax Big Box that (I have heard?) are trying to move into the datacenter construction/operation business themselves to try to capture some of the sexy datacenter value-add (a terrible idea, imho, I think they'll get a couple of good years from it then a decade of horror, but that's another story).

Unite can do non-REITy stuff too, e.g. they could directly provide services inside the properties (cleaning, maintainance, canteens, shops, vending machines), which generate income, they can build out new property developments (in cooperation with universities), they can operate lettings for properties owned and co-owned by other groups, and so on.

Some REITs have to do quite a bit of work and marketing regularly to get trade (think, short term storage like Big Yellow or Safestore), others, not so much. Unite is sort of in the middle of the sector here, they have some direct lets they have to work to fill every year, and they have some properties where they sell spaces to universities up to 20 years in advance, with inflation built into the contract.

The REITs that have to do more work to operate in their sector, often have higher comparative running costs, compared to the sectors where REITs can run on a shoestring budget (but perhaps those businesses can only access lower rental yields). Unite is on the high end of the spectrum when it comes to running costs. Generally running costs improve with scale, which is kind of part of the argument about acquiring Empiric. It was a small student accom REIT, and paying a relatively higher % of income to duplicate a lot of the operational stuff Unite has in place. Synergy / de-duplication, etc.

Some REITs have fierce competition all the time (Big Yellow/Safestore are always competing with your mate's empty shed or attic). Others, not so much. Unite is kind of middle of the road, arguably low competition. It's in a unique kind of position in many areas where it operates, I mean, you literally can't just put up new buildings anywhere you like right next to a university campus overnight. This kind of thing isn't always well reflected in the NAV of these companies. (In the case of Unite, I'd argue that it makes the 'real' NAV/share a bit higher than it seems on paper).

There are also UK based multi-country or foreign REITs, which can be exotic (SRE for example, or the quite remarkably-named "Phoenix Spree Deutchland"). The tax situation for these sometimes boils down to, 'the UK bit is a REIT and the foreign bit is a regular company'. There are many opportunities for excitement and fun with foreign-property REITs. For example, you may find it interesting to browse through the last few annual reports of SEREIT while paying close attention to any gradual change of tone and outlook.

https://www.propertyweek.com/f...

On top of that there is the issue of reinvested income over the years (for the REITs that don't pay everything out), reinvestment of profit from refurbishing or trading properties (significant for some REITs, such as AEW), and last but not least, inflation.

Inflation is a big issue. RPI inflation for the UK from January 2015 to December 2025 (11 years per your post) amounts to 160%. Generally, that's pushed up rents in many parts of the economy that REITs are exposed to. If nothing else had changed at Unite Group (or any other REIT) in all that time, you'd still be 160% better off paying price X today, than price X in 2015.

There are exceptions where significant secular change has occured to diminish rents despite inflation (cough, cough, British Land, cough, cough, Land Securities, HUGE COUGH Regional REIT). Indeed the issue that seems to be driving sentiment on Unite Group is 'is a secular change occuring that will make blocks of flats in popular university towns not very valuable any more'. Historically, Unite benefits from inflation 'for free' as it is written into many of their long term contracts.

About retained income and value adding services that generate non-rental income: UK REITs are obliged to pay out 90% of property income, minimum. Many pay out 100%. Some REITS even pay out more than 100%... ;-)

However any money that UK REITs make from non-property value-add services, is not obliged to be paid out, and is often reinvested back into the business. It has to be accounted for independently of the rentals bit of the REIT. Unite for example does things this way. It leads to an interesting complication with things like dividends and calculation of business efficiency.

UK dividends from REITs are sometimes split into two parts. There's the PID, (property income distribution), which does not experience corporation tax, and *often* experiences a withholding tax depending on the tax status of the person or company recieving it. Then you may also get a regular type of dividend from the non-REITy bits of the company, the value-add services etc. Corporation tax will be paid on this, and I believe for most tax payers there is no withholding tax, though obviously further taxes will apply as normal per your dividend situation. (THIS IS NOT TAX ADVICE! look up anything tax related for yourself or consult a tax advisor.)

Unite usually pay out the property rental bit, and either retain or pay out the value-add bit. This means there has been quite a few years of earnings added into the business with Unite Group, that you may not see with other large REITs.

For example, this year the earnings were 47.5p but the dividend was 37.7p, that's quite a big gap and this year some of it seems to be coming back to investors in the form of a meaningful % buyback. Whereas, you look at other REITs like CREI, PHP, THRL, SUPR etc, I believe they're just paying everything out as it comes in, so over a decade-long view there's not really the same effect of steadily reinvested surplus.

Regarding the details of the dividend yield. Jim, you wrote,

"Yield before tax 5.79%"

I don't think that's exactly true, because it depends what you mean by 'before tax'.

The dividend for the current year looks like this:

"The Company announced its half year results for the six months to 30 June 2025 on 29 July 2025 and declared an interim dividend of 12.8 pence per share (the “2025 Interim Dividend“), 9.7 pence of which will be paid as a Property Income Distribution (“PID“) and the remaining 3.1 pence as Non Property Income Distribution (“Non-PID”)." [1]

"We are proposing a final dividend payment of 24.9p per share (2024: 24.9p), totalling 37.7p for the full year (2024: 37.3p) and representing a 1% increase compared to 2024. This represents a payout ratio of 79% of adjusted EPS. The final dividend will be fully paid as a Property Income Distribution (PID) of 24.9p, which will fully satisfy our PID requirement for the 2025 financial year." [2]

So there is 3.1p (no withholding taxes), and 9.7+24.9 = 34.6p PID (which may or may not have withholding taxes depending on the situation).

If you're a UK investor using an ISA or SIPP for example, and if your broker has registered their nominee stuff correctly, it arrives gross. Some other UK brokers will reclaim the withheld tax so that it arrives net at first, then the extra gets paid up later to become gross.

In some countries, perhaps someone might be able to offset the UK PID withholding tax payment made against their personal local dividend taxes or property rental taxes. It would presumably depend on their personal situation and the laws of the country in relation to dividends, rental income, REITs etc. I am ignorant on this topic. It is very far outside my own experience and knowledge.

But the gross payment 'before tax' is 37.7p. It is also expected to be 37.7p in 2026, and it was 36.0p in 2024. [3]

I'll take the Unite share price as 520p for this calculation.

2025 => 37.7/520 => 7.3% yield, 'before tax'.

2025 => 36.0/520 => 6.9% yield, 'before tax'.

This might lead you to some interesting thoughts about the relative merits of REIT investing vs regular stock investing for an investor who focuses within their local economy using tax efficient investment wrappers.

Complicating things, many REITs pay dividends in four regular annual payments, but Unite pays a big dividend in the first half of the year and a smaller payment in the second half. If you buy in the next couple of months, the soon-arriving dividend might nudge the value characteristics around by a few %. I feel that if I get a dividend within a month or so of buying a stock, I can count it as a kind of 'discount' on the apparent price of the stock, at least when I'm making historical comparisons against how the stock was priced before on long term graphs.

Anyway I hope this post was useful to you or to someone in some way, I hope that it has not come across as condescending or rude at all (its intended as a quick tour of the pecularities of the UK REIT sector), and I hope also that I have not made any important mistakes above.

Best wishes, and welcoming any feedback / criticism,

TRS.

[1] https://www.unitegroup.com/inv...

[2] https://www.investegate.co.uk/...

[3] https://www.dividendmax.com/un...