UPDATE 1-UK's Unite swings to H1 loss, steps up asset sales

(Adds details, CEO and analyst comments, share price)

LONDON, Aug 29 (Reuters) - Unite Group (UTG.L), Britain's largest student housing provider, said on Friday it will step up asset sales as it swung to a half-year pretax loss.

The group's property portfolio dropped in value, and predicted weak market conditions would linger through 2009.

Unite shares dropped 4 percent to 233 pence at 0702 GMT.

It earlier posted a half-year pretax loss of 12.8 million pounds ($23.4 million) to the end of June as it revalued its portfolio to reflect weak market conditions and it made accounting provisions to reflect lower land values.

Unite, which posted a profit of 25.8 million pounds a year ago, maintained a dividend of 0.83 pence per share.

"The lacklustre state of the economy is very significant, and will continue to depress values well into 2009," Chief Executive Mark Allan said in a telephone interview.

But Unite is fighting back by selling properties in cities where it has too small a presence, lowering debt and raising cash to opportunistically buy land at depressed values, he said.

Unite has raised about 241 million pounds -- or 14 percent of its portfolio -- selling assets in small towns like Preston, Stoke and Luton, to focus on main university cities like London, Manchester and Glasgow.

Some analysts favour the stock for its niche position.

"Unite has an unassailable market leading position in one of the few secular growth markets within the real estate sector, where rental growth remains strong and the industry demand/supply balance favourable," Landsbanki analyst Mark Reed said in a note.

"Key investor concerns of the sustainability of its room rollout and the strength of on-going university accommodation demand look overdone."

Following its last spate of disposals, net debt will fall to around 500 million pounds, or 106 percent on a debt-to-equity basis, he said. It will also have about 800 million pounds in cash and loan facilities by the end of 2008 to buy cheap land, he said.

"Development site values are falling quite dramatically .. in the toughest property market for 30 years," he said.

"An opportunity is emerging to buy land relatively cheaply, and we're selling a range of non-core assets to generate cash. We'll have a decent amount of firepower."

At the operating level, Unite said reservations at the end of August stood at 95 percent of available rooms, compared to 75 percent a year ago.

"What's encouraging is that we are posting good rental growth and student numbers are growing," Allan added.

Fully diluted net asset value fell by 2.3 percent to 498 million pounds, or by 2.9 percent to 398 pence, at the end of June from a year ago, Unite said.

Unite develops, manages and co-invests in student accommodation for 38,000 students in 29 university towns and cities across Britain. (Reporting by Hsu Chuang Khoo; Editing by Chris Wickham and David Holmes)