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.

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November 13, 2023

BLND, SOHO, DAR | Economy – House price decline heading for 2% for 2023, Rightmove

Company news

British Land Company (BLND, 314p, £2,909m mkt cap)

Leading UK commercial property investment, development and services group. HY (Sep) results. U-lying +3.4% £142m; IFRS loss after tax -£61m; u-lying EPS, -6.6p (HY 22, -3.5p); interim div +4.8%, -12.2p; EPRA TNAV, 565p (588p); LTV, 37% (36%).

Trading: “Another strong period of leasing and good cost control. We have seen yields continue to move out, but as we predicted in May, at a slower pace. Rental growth has accelerated, with lettings 12% ahead of ERV, and occupancy remains strong at 96% well above levels in the wider market”. Portfolio occupancy, 96%: Campuses, 94%; Retail Parks, 99%; London Urban Logistics, 100%. ERV +3.2%: Campuses, +3.2%; Retail Parks, +4.0%, London Urban Logistics, +3.1%. Yields +23bps, 6.1%: Campuses +32, 5.3%; Retail Parks +13, 6.7%; London Urban Logistics +9, 4.7%. Values -2.5%: Campuses. -4.0%; Retail Parks +0.2%; London Urban Logistics +0.6%.

Outlook: “We are benefitting from our decision to pursue a value-add strategy across campuses, retail parks and London urban logistics. These submarkets have the strongest occupational fundamentals and highest rental growth within the office, retail and logistics sectors. We now expect ERV growth at the top end of our previous guidance for FY24. Whilst in the past 18 months we have delivered good earnings growth, asset values have been impacted by the increase in interest rates. The geopolitical and economic landscape remains uncertain; however, with our portfolio yield now over 6% and an increased likelihood we are approaching the peak in UK base rates we expect the strong occupational fundamentals of our submarkets, together with the differentiated quality of our assets, to reassert themselves as the primary drivers of performance”.

Triple Point Social Housing REIT (SOHO, 61p, £238m)

Real estate investment trust investing primarily in newly developed social housing assets, with a focus on supported housing. Net asset value, update on shareholder consultation and dividend declaration. NAV -2.2%, 108.9p. The reduction was a result of a £9.8m (2.48p) decrease in the value of the group’s property portfolio. The blended portfolio net initial yield moved out by 16 bps during the quarter to 5.84% as at 30 September, reflecting wider market conditions and adjustments attributable to properties leased to My Space and Parasol Homes. At least 65% of the Group’s 2024 annual rent increases will be linked to the September 2023 Consumer Price Index figure of 6.7%. Q3 dividend, 1.365p, in line with the FY (Dec) target of 5.46p. Shareholder consultation: The Board and the Manager, Triple Point Investment Management, have consulted with shareholders representing c. 21% of the register, addressing the persistent discount to EPRA net tangible assets. Alongside these active considerations, the Board and Manager continue to focus on the underlying performance of the group. “The majority of the portfolio continues to perform in line with expectations with 25 out of 27 approved providers demonstrating no material arrears”. As reported in the interim report for the six months ended 30 June, a creditor agreement is in place with Parasol and Parasol is paying all monthly rent due under the agreement. The Manager is working towards agreeing a creditor’s agreement with My Space which is expected to be in place by the end of Q1 2024. Simultaneously the Manager is working with My Space to move certain properties to alternative Registered Providers. As expected, dividend cover improved in Q3 2023 and the dividend for the quarter was fully covered on an adjusted earnings basis. “We anticipate this improved dividend cover to continue over the remainder of the financial year”. The Group has a total cash balance of £31.0m of which £5.1m is in restricted bank accounts and a further £14.4m is held back for working capital purposes, leaving net available cash of £11.5m. “Therefore, were the Company to undertake a further return of capital with an equal corresponding paydown of the group’s debt, any such distribution to shareholders would be limited to c.£5.8m. Given current economic conditions and the limited amount of capital that the Company would currently be able to return to shareholders without increasing its gross leverage, the Board has decided that any further return of capital is dependent on significant additional liquidity being delivered through property sales. Following the portfolio sale announced on 1 September, which was principally in line with book value, the Board and Manager will continue to consider further disposal opportunities. However, this is subject to market conditions being supportive of maximising shareholder value and so a further portfolio sale is unlikely to be pursued before the end of this year. The Board remains committed to shareholder engagement and will continue to consult with shareholders as further progress is made”.

Dar Global (DAR, US$3.67, £542m)

UK quoted international real estate developer operating in UK, Spain, UAE, Oman, Qatar and Bosnia. Expansion into Saudi Arabia. The group is strategically expanding its geographical presence to include Saudi Arabia. “As part of Kingdom’s Vision 2030 plan, Saudi Arabia is undertaking giga projects in the real estate and hospitality sectors on an unprecedented scale, these projects aim to attract the affluent international clientele and build global appeal in the Kingdom. The group will also benefit from its parent company, Dar Al Arkan’s, established presence in Saudi Arabia with a 29-year track record of delivering high quality real estate projects in the Kingdom. While Dar Al Arkan will remain focused on a domestic customer base, Dar Global will be able to leverage Dar Al Arkan’s significant Saudi market knowledge and local relationships, in areas such as planning, development and construction. Dar Global will use a similar business model to that used in other international markets, differentiating its properties through partnerships with highly desirable luxury brands to develop unique second homes and investment properties for high-net-worth customers, specifically targeting those who are looking to participate in the unprecedented growth expected in the Kingdom over the coming decade”.

Economic data

House prices. Asking prices fell by 1.7% this month to £362k (October +0.5%), the largest November drop since 2018, according to Rightmove’s monthly House Price Index, but the Y/Y decline so far is only 1.3%, compared with the portal’s 2013 full year forecast of -2%. Average asking prices are just 3% below May’s peak. Sales agreed are now 10% below 2019’s pre-pandemic level, improving from 15% below last month. The number of sales being agreed for studio, one-, and two-bed properties is just 7% lower than 2019’s level; four-bed detached houses and all five-bed plus properties are 14% behind 2019. This trend is echoed with first time buyers’ prices falling by only 0.2% Y/Y compared with -1.6% for ‘second steppers’ and -1.4% for the ‘top of the ladder’. Geographically, there were Y/Y price declines in the Midlands and all Southern regions, by contrast Wales (+0.1%), Scotland (+1.9%) and the northern English regions saw rises in the price of newly-marketed properties. According to Rightmove “We’d expect to see a drop in new seller asking prices in the last couple of months of the year. However, the larger than usual drop this month signals that among the usual pricing seasonality, we are starting to see more new sellers heed their agents’ advice and come to market with more enticing prices to stand out from their over-optimistic competition. Buyers are still out there, but for many their affordability is much reduced due to higher mortgage rates”.

2023-11-13 percentage montly change in average asking prices

Prices are as at the previous day’s close. Where quoted, net debt is pre-IFRS16 (excluding leases) unless otherwise stated.

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