Property & Construction Daily

The Property & Construction Daily provides a sector-specific comment from leading analyst Alastair Stewart. His daily perspective provides a round-up of market statements, news, economics and views from the property and construction sectors.

February 2, 2024

AUK, RGL | Economic data – Rate of decline in housing transactions narrows, HMRC | Economic research – Grey area for Labour’s land plans | News – Barratt boss joins PM’s industry council | Fortnight ahead

Company news

Aukett Swanke Group (AUK, 0.9p, £2.7m mkt cap)

UK’s only quoted architect, active in UK, Middle East and Europe. Commercial update.

Guidance: FY Sep), “The group made a small pre-tax profit, before acquisition-related exceptional items, on revenue of approximately £14m (FY 22, £7.1m). For FY 24 we expect the group’s performance to remain second half weighted”.

Finances: The group has sourced a new 12-month funding facility for its subsidiary Torpedo Factory Group (TFG), secured on The Old Torpedo Factory in west London, which is currently listed for sale. The facility comprises a £1.40m, of which £1.36m is interest only and the remainder repayable on a monthly basis. This refinances and replaces an existing mortgage on the property which was due to expire on 7 February. Offers have been received for the property but no sale has yet been agreed. “The facility will allow the group to continue to progress these and other discussions to sell the property in an orderly manner”. It was independently valued at £3.08m in July 2023, “but in line with current market conditions the directors anticipate the sale price will be below this level”. TFG also has approximately £0.9m of CBILS-backed loan finance outstanding, which is repayable monthly over the period to July 2026, which is unaffected by the new facility. The group’s only other bank borrowings are a separate CBILS-backed loan of approximately £0.1m, which is due to be fully repaid by May, and an overdraft facility of £250,000. On 27 December the group completed the disposal of its loss-making Turkish subsidiary, Aukett Swanke Mimarlik to ASM’s management, for a nominal sum. The group will record a loss on disposal which will be less than £0.1m. The group currently retains its two German architecture investments, which remain profitable and from which the Group receives management fees and dividends.

Outlook: “We are pleased to have returned the group to full year operational profitability after several years of losses. Looking ahead to the current financial year, we expect the enlarged group to report record revenues, with the second half performance as usual stronger than the first half. The successful sale of our freehold property would eliminate our net debt, enabling us to accelerate our smart buildings strategy”.

Regional REIT (RGL, 28p, £146m)

Real estate investment trust specialising in income generating regional UK office and industrial assets. Q4 (Dec) trading update and year-end portfolio valuation.

Guidance: Portfolio valuation -11% Y/Y, £701m; LFL -5.9% during H2 after adjusting for capital expenditure, acquisitions and disposals during the period (5.5% excluding capital expenditure adjustment). LTV, 55.1% (FY 22, 49.5%). “2023 was one of the most challenging years for REITs in recent memory and Regional REIT was not immune from the macro-economic difficulties faced by the sector. Whilst valuations have been impacted, active asset management initiatives continued to mitigate some of the impact on the portfolio. The leasing market was slower than anticipated largely due to the uncertainty around working patterns and the geopolitical situation impacting inflation and interest rates, but with some stability we are witnessing increasing numbers of enquiries for our assets. The ongoing asset disposal programme continues to achieve the latest valuations”.

Trading: FY 23 rent collection, 98.6% (97.9%. Gross annualised rent roll -5.6%; ERV -5.4%, £87.0m. Equivalent Yield 9.9% (9.0%). Portfolio, by value: offices, 92.1% (91.8%); industrials, 3.2% (3.1%); retail, 3.1% (3.6%); other, 1.7% (1.4%). England, 78.4% (78.3%); Scotland, 16.2% (16.7%); Wales, 5.4% (5.0%).

Outlook: “It is pleasing to note that substantial progress has been achieved in improving the EPC rating of the portfolio. Over the course of 2023 the number of properties rated EPC C and above has improved to in excess of 73% of the portfolio. LTV continues to be a key focus of the Board and the management have a plan to reduce LTV to the long term target of 40% through selective sales and repayment of debt. The senior debt is 100% fixed, swapped or capped and will not exceed 3.5%. The Company is actively exploring a range of refinancing options for the retail bond given its near-term maturity date.”

Economic data

Housing transactions fell for the fourth consecutive month on a seasonally-adjusted basis in December, but at a reduced M/M and Y/Y rate, according to the latest HMRC data (from Wednesday). On a seasonally-adjusted basis, transactions fell by 0.8% to 85,820, following -3.1% then -1.4% in October and November and -8.0% in April, as rising interest rates took hold. The non seasonally-adjusted Y/Y rate was -20.2%, down from -22.0% in November. The Y/Y national declines were: England, -22% (Nov, -23%); Scotland, -7.5% (-12%); Wales, -17% (-24%); Northern Ireland, -10% (-16%).

Viewpoint: The HMRC data takes in cash as well as mortgaged properties, so is the most comprehensive series, but, like ONS house prices, it is more ‘back end-loaded’, as it is based on completions. While both are still falling, the rate of both are declining, supporting more positive data from BoE mortgage approvals, Halifax price and other data – which are based at an earlier stage in the process.

Residential Housing Transactions UK

Economic research

Housebuilding policy. With Labour pledging to kickstart Britain’s housebuilding by using areas of previously-developed green belt dubbed ‘grey belt’ sites, Knight Frank has published an Intelligence Lab report on their availability – which may be disappointing to the party. England’s green belt makes up 12% of its land. Within that, Knight Frank research has identified over 11,000 previously developed sites that comprise less than 1% of the green belt, which could only produce 100,000-200,000 new family homes, depending on the density of the developments, according to the agent’s geospatial unit. Of the 11,205 sites identified, just over 40% (4,612 sites) sit within the London green belt area. Merseyside and the Greater Manchester green belt area offered the second highest number of available sites (1,068), followed by green belt areas in Birmingham (1,351 sites), South and West Yorkshire (1,129 sites) and Bristol and Bath (606 sites). “The ‘grey belt’ will only ever be part of the solution, and it should form part of a range of housing land supply including sites in our towns and cities, as well as at other strategic or sustainable locations. Significantly, and what is unique to the grey belt, is that it is suited to family homes, for which there is great need”.

grey belt sites within green belt LPAs

In other news …

Politics. Barratt Developments (BDEV) CEO David Thomas, Housebuilder magazine has been appointed to the Prime Minister’s 2024 Business Council, established to drive the Government’s growth agenda. The council of UK businesses will, according to No 10, meet regularly with the PM in Downing Street “to share intelligence directly from the shop floor to help boost the UK economy and create jobs”. He joins a group of fellow-CEOs including from BT Group, Nationwide and Lloyds Banking Group, which represented more than 200,000 employees across the UK.

240202 Fortnight ahead
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