Questor share tip: Buy Unite for property investment

Unite is enjoying low costs of borrowing and rising rents. The company set a target of achieving around 18p in earnings per share by 2015. Mark Allan said he expects to reach that target a year early with 17.2p in earnings per share this year, more than 15pc above analyst targets of 15p.

The average cost of the debt has been reduced to 4.7pc, down from 5.3pc at the end of June last year and almost all the interest rates are fixed. The average debt maturity has also increased to more than seven years, from less than five at the end of June last year. The portfolio of student accommodation yields a steady 9pc to 10pc.

Student numbers are also resilient. Mark Allan, chief executive, said that the latest figures from UCAS show university applications up 3.6pc for this academic year. Occupancy levels for Unite’s accommodation in the current academic year are a record 92pc, from 90pc in the prior comparable period.

This has all had a positive effect on the value of assets that support the share price. The net asset value of the property portfolio increased by £134m to £816m at the end of June. That equates to an increase in net asset value per share to 402p, up from 382p.

Unite expects to add 1,600 beds in London in the next two years.

The developments will mean half of Unite’s portfolio will be in the capital, up from the current 40pc. Brokers calculate this will add about 74p to the net asset value per share within the coming 18 months.

The shares don’t offer much by way of income. The 5.6p prospective annual dividend, yields about 1.3pc. However, Mr Allan expects to increase the payout and analysts forecast as much as 8.1p next year, or 45pc increase.

What you are paying for here is the growth in the net asset value of the property portfolio, and that doesn’t look unreasonable. The shares are up 23pc on our original recommendation (357p, August 30) and still look attractive. Buy.

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