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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September 28, 2023

INL, INLZ, HSS, HICL | Economy – Buyers return post-holidays but prices trend negative, Zoopla | News – Will HS2 go North (or south)?; Planners threaten wrecking ball for towers

Company news

Inland Homes (INL, shares suspended)

Leading brownfield developer, housebuilders and partnership housing group, focused on South and South East. Intention to appoint Administrators. “The directors of Inland Homes plc advise that they have resolved to proceed with the process of appointing David Hudson and Phil Armstrong of FRP Advisory Trading Ltd as Administrators of the Company and that certain of its subsidiaries which have granted floating charges have today filed notices of intention to appoint Administrators. On 24 July, Inland announced the outcome of a review by FRP into related party relationships and transactions and other matters.  As part of the process to complete the audit for the year to 30 September 2022, Inland commissioned a further limited review by FRP designed to identify, amongst other matters, whether control breaches or incomplete disclosures impacted other areas of corporate governance and financial reporting in the period 1 October 2020 to 30 September 2022 including material judgements and estimates. The review conducted by FRP, on which they reported on 22 September 2023, has provided sufficient indication that further work is still required into material judgements and estimates applied to the financial statements both for the year to 30 September 2022 and for the year to 30 September 2021 before the preparation of the financial statements could be completed and then audited. The extent of further work and cost required to complete the preparation of the financial statements and the audit for FY22 cannot be certain at this stage, and the timeframe within which this might be feasible is not known. The Company continues to be in active discussions with HSBC regarding waivers for the breaches announced on 11 September 2023.  Inland also anticipates that it is likely to be in breach of covenants with other lenders shortly and it has already initiated discussions with such lenders. On 24 July 2023, Inland announced the proposed acquisition of NorthCountry Homes Limited as part of a strategy to develop a low cost homes business model.  The proposed acquisition was subject to a number of conditions including the restoration to trading on AIM of Inland’s shares.  Restoration to trading is not likely to occur, and accordingly this strategy cannot be implemented. Inland has reviewed options to continue its policy of seeking to complete existing construction projects at the same time as undertaking a comprehensive programme of disposals of its land assets, most of which are held as inventory. Taking into account the current circumstances and including the group structure and the current cash resources available to it Inland has concluded that the appointment of Administrators in accordance with the provisions of the Insolvency Act is in the best interests of all stakeholders. Trading of the Company’s shares on AIM was suspended on 3 April 2023 and pursuant to AIM Rule 41 admission of a company’s shares to AIM will be cancelled where trading in its shares has been suspended for six months. Accordingly, Inland anticipates that admission of its shares to AIM will be cancelled on 4 October 2023”. Inland ZDP (INLZ, 48p, £8.7m mkt cap), formed for the issuing of Zero Dividend Preference Shares in Inland plc, “notes the announcement … and is considering the impact on the Company of this intent. Once considered by the Board, a further announcement will be made in due course”.

HSS Hire Group (HSS, 10.4p, £73m mkt cap)

Anglo-Irish tool and equipment hire group. HY (Jun) results. Rev +6.3%, £170m; adj PBT -30%, £5.9m; stat PBT -15%, £5.5m; adj EPS -31%, 0.66p; interim div +6%, 0.18p; net debt £50.0m (£36.1m), 1.0x EBITDA (0.9x).

Trading: Revenue growth “ahead of market”. Adj EBITA +4% excluding the £2.2m strategic operating expenditure investment. “Good progress with transformational marketplace growth strategy with Pro self-service platform delivering 50% average revenue growth compared to H1 22; low-cost builders merchant network expanded to 67 locations (HY 22, 54) and delivered 23% growth on a same stores basis”.

Outlook: “The weak macro environment has caused trading in the first twelve weeks of H2 23 to slow considerably to 2% (6.3%), albeit with significant week on week variation. While the Services segment has continued to deliver double-digit growth, Rental has been impacted by demand softness across certain customer segments including RMI and fit-out, exacerbated by seasonal product weakness. Management has responded quickly with targeted action to minimise costs. This is expected to deliver benefits of approximately £6m in H2 23, including accelerating the branch migration to the builders merchant model. Forward visibility is limited given the weekly volume volatility recently experienced, and as such the Board currently expects full year adjusted EBITA to be in the range of £23m to £30m.  Even at the lower end of this range, the group will deliver the second highest adjusted PBT in its listed history. The Board remains very confident in its transformation strategy to evolve HSS into a leading marketplace for equipment services.  It will therefore continue to maintain the appropriate balance between shorter term profitability and future growth. With the early positive results coming from this strategy despite challenging market conditions, £6.5m strategic operating expenditure investment and £6m technology roadmap capex for the full year will remain as planned”.

HICL Infrastructure (HICL, 123p, £2,503m)

Listed infrastructure investment group with diversified portfolio of 117 investments in UK, Europe and N America. Portfolio disposal. Five assets sold to John Laing, an international core infrastructure investor, for c. £204m, a small premium to the last audited valuation at 31 March. The portfolio is made up of HICL’s entire equity interest in four UK PPP projects; Queens (Romford) Hospital, Oxford John Radcliffe Hospital (OJR), Priority Schools North East Batch and South Ayrshire Schools, in addition to half of its investment in the Hornsea II OFTO2. Completion of all five disposals is expected before HICL’s 31 March 2024 year-end. “This accretive transaction evidences the robustness of the company’s net asset value, improves portfolio construction, and enhances the key metrics of yield, inflation correlation and asset life. The partial sell-down of the recently acquired Hornsea II OFTO was envisaged at the time of acquisition and demonstrates responsible balance sheet management against a challenging market environment”. The transaction proceeds will reduce the drawings on the Company’s Revolving Credit Facility to c. £130m. The largest of the five assets, OJR, was developed by Carillion under the private finance initiative and HICL acquired its interests in 2010 and 2012. “Following the liquidation of Carillion in 2018, InfraRed’s asset management team led the project restructuring to successfully resolve all outstanding contractual obligations with the NHS client, replace the facilities management service providers and subsequently remediate outstanding defects. As a result of HICL’s ownership, the project has been stabilised and de-risked, and maintains strong relationships with key stakeholders”.

Economic data

House prices. Annual house price inflation moved to -0.5% in August from +0.6% in July, but demand so far in September has risen by 12% since the Bank Holiday, according to the latest UK House Price Index from Zoopla. Prices changes range from 1.6% in Scotland to -1.5% in the South East and Eastern regions. A buyers’ market remains – the average discount to the asking price to achieve a sale up to 4.2%, the highest since 2019, Discounts are greatest at 4.8% in London and the South East compared to 2.8% for the rest of the UK. However, the property portal’s economists expect the overall fall in 2023 to be only 2 – 3% and that the number of buyers will increase once mortgage rates get below 4.5%.

Modest upstick in demand in Sept 23

Mortgage rates. The cost of fixed rate mortgages have been falling for nine weeks now according to the latest Weekly Tracker from Rightmove.

Viewpoint: The reductions are possibly lower than expected following the BoE’s decision a week ago to hold the Official Bank Rate (with the biggest fall in the two-year 95% LTV average). However, the short-term focus among lenders and would-be borrowers is likely to be on whether it’s a peak or there’s one more hike to come.

Average mortgage rates, 5-year and 2-year fixed (%)

In other news …

HS2. Will it or won’t it go to Manchester? There has been massive and apparently co-ordinated backlash against the suggestion that HS2 will become merely a shuttle service between Birmingham and … somewhere called Old Oak Common. (My suspicions about the depth of government thinking involved were heightened when The Times reported that former journalist Andrew Gilligan (who left a mixed record it’s fair to say), was one of the main advisers to Rishi Sunak. Someone with a far deeper knowledge of infrastructure is Conservative ex-Transport Secretary Steve Norris, who correctly predicted in Property Week some years ago that the Leeds branch wouldn’t go ahead. What are his views, ahead of the Tory conference (in Manchester) on whether it will go ahead to the city and, at the other end, to Euston? He postulates in today’s PW column, Is the HS2 project going off the rails?


Planning. Developer Comer Homes Group is being ordered to demolish two residential tower blocks in south London following a planning row, Greenwich Council launched enforcement action this week over Mast Quay Phase II in Woolwich which was completed in late 2022 and now contains residents in the stepped twin towers of 23, 11, nine and and six storeys. The council claims the build-to-rent development has “26 main deviations to the original planning permission” which was granted in 2012. These include visible design changes to the towers making them “more solid and bulky”, changes to cladding and a lack of a promised roof garden for residents and children’s play areas and gardens. Greenwich said: “The Council believes that the only reasonable and proportionate way to rectify the harm created by the finished Mast Quay Phase II development to the local area, and the tenants living there, because of the changes made during its construction is the complete demolition and the restoration of the land to its former condition”.

Viewpoint: Phew! The odd pub developer gets ordered to demolish for erring from original designs, but a fully-tenanted tower? This could set a huge precedent for developers and planning authorities going forward. As to the (computer generated) ‘before’ and (actual) ‘after’, judge for yourselves …

Building image

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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