Unite Group will buy the Liberty Living property portfolio from the Canada Pension Plan Investment Board
Unite Group (UTG) has consolidated its position as the UK’s largest provider of student accommodation with a £1.4 billion deal to buy the Liberty Living property portfolio from the Canada Pension Plan Investment Board.
Buying the 24,021 bed portfolio, which was independently valued at £2.2 billion in May, will increase Unite’s total portfolio to 73,000 beds across 173 properties in 27 UK locations.
The company said 82% of the acquired properties were aligned to high and mid-ranked universities and brought exposure to the Russell Group universities of Southampton and Cardiff.
By combining two highly complementary portfolios, the enlarged group will be well positioned to meet the growing need for affordable, high-quality student accommodation in university towns and cities where demand is strong, said Unite chief executive Richard Smith.
Unite is paying £800 million cash and £600 million in shares for the transaction.
The equity component will see Unite issue 72.6 million of new shares to Canada Pension Plan Investment Board which will have a 20% stake in the enlarged group and a seat on the board.
Nearly £260 million of the cash has come from shareholders who bought 26.3 million new shares at 959p, a 3.5% discount, after the deal was announced last week. Another £310 million will be drawn from Unite’s existing financing facilities.
The deal boosts Unite’s stock market value to £2.9 billion pushing it further ahead of rivals GCP Student Living (DIGS) and Empiric Student Property (ESP) which are capitalised at £672 million and £546 million respectively.
Smith said the transaction would add to earnings from next year and generate £15 million of annual cost savings by 2021 while sustaining its medium term rental growth outlook. Unite would maintain its 85% dividend payout ratio, he said. The shares yield 2.9%.
Peel Hunt analyst Matthew Sapeira retained his ‘buy’ recommendation on the stock and said Unite was targeting an earnings per share yield of 6% across the combined group in 2021, ‘which reflects a 15% uplift on our current forecast’.
He said that they like the deal which provides Unite with enhanced scale and significant earnings accretion.
Liberum analyst James Ashley, who has a ‘hold’ recommendation on the group, said the acquisition would ‘further enhance and extend Unite’s strong earnings growth’. Unite offers the combination of predictable rental growth, a pipeline of higher return developments and scale efficiencies which should sustain its sector-leading returns, he said.