Student accommodation developer UNITE Group PLC (LON:UTG) said its Unite Students Accommodation Fund (USAF) joint venture has acquired a property under development in Durham.
The 'forward funded' asset will be opened in September 2018 and will provide a home for 363 students attending Durham University.
USAF, in which UNITE has a 24.6% stake, is paying £34mln for the asset and expects it to yield on cost of 6.4% in its first year of operation.
Based on current valuations, the asset will be valued at a yield of 5.5%, UNITE said, resulting in a profit on cost of around £5mln, of which UNITE's share will be £1.1mln.
"This latest acquisition further extends our high-quality development programme in a strong regional location where there is strong demand for purpose built student accommodation,” said Richard Simpson, the group's property director.
“Our strategy remains focused on high quality universities like Durham, where we see sustainable growth," he added.
Broker Liberum gave the deal the thumbs-up.
"We believe Unite offers one of the best combinations of capital and income growth in the sector, with forecast total returns of 12% p.a., and trading at a 10% discount to NAV. Forecast growth is anticipated to come from RPI linked rents and a secure development pipeline. While the cycle of yield compression may be over for student accommodation, we believe Unite's prospects for income growth remains attractive, and that the capitalisation of that gain to NAV will continue to support total returns," it said,
Shares in UNITE dipped 3p to 633.50p. Liberum has a price target of 720p.
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