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 1, 2022

Prices slip for first time in 15 months – Nationwide

IWG, HOME, AIRE | Prices slip for first time in 15 months – Nationwide

Company news

IWG (IWG, 132p, £1,329m mkt cap)
Global operator of workspace brands, including Regus. Q3 (Sep) trading update. Guidance: “Monthly
profitability is continuing to grow, and we remain cautiously optimistic about the outlook for the full year, with
adjusted EBITDA expected to be towards the lower end of the range of market estimates (£304m – £380m).
With improving EBITDA through the fourth quarter, we remain on track to further reduce net debt and the
leverage ratio by the year-end”. Trading: Group rev Q3 +34% Y/Y, £737m (+25% constant currency); Q1 – 3,
+28% Y/Y, £2,047m. 252 new centre contracts completed to date. “Continued pricing strength and focus on
cost and efficiencies largely mitigating inflationary pressure”. Net debt, £723m (HY 22, £741m).

Home REIT (HOME, 84p, £665m)
Real estate investment trust funding the acquisition and creation of properties providing accommodation to
the homeless. FY (Aug) trading update. Trading: As at 31 August, the portfolio consisted of 2,239 properties,
let to 29 different tenants with a weighted average lease length of 24 years to first break. All the Company’s
properties benefit from fully repairing and insuring green leases with annual upward-only rent reviews, indexlinked to CPI, with an annual collar and cap of 1% and 4% respectively. In FY 22 the company acquired 1,528
investment properties, with a further 220 investment properties acquired since the year end, taking the total
to 2,459, accommodating 11,796 beds. The company remains on target to pay a total dividend of 5.5p with its
fourth quarterly interim dividend, which the Board expects to announce at the time of its annual results. Circle
Housing, representing less than 3% of the annual rent, was placed into voluntary administration in July. Their
rents are set at affordable levels, averaging under £61 per bed per week and rents continue to be paid by the
Administrator whilst the company progresses assignment of the leases to an existing portfolio tenant. All
residents are unaffected by this process. FY results, 28 November.

Alternative Income REIT (AIRE, 74p, £59m)
UK commercial real estate investment trust. Q1 (Sep) update. NAV: At 30 September, the unaudited NAV per
share was 97.0p, representing a 0.6% increase over the quarter. When combined with the 1.375p dividend
paid for the quarter, this produces an unaudited NAV total return for the quarter of 2.25%. Dividend/EPS:
Having achieved the Company’s target dividend of 5.5p last year, the Board has set a new dividend target of
5.7p for the year ending 30 June 2023. Adj EPS was 1.45p for Q1 23 (Q4 22, 1.38p), reflecting 105% dividend
cover. Valuation: At 30 September, the portfolio, comprising 19 assets, had a fair value of £119m, representing
a 0.6% increase over the quarter. The net initial yield was 5.73%, compared with 5.70% at 30 June 2022. Over
the next 12 month period, 68% of group income will be reviewed. Outlook: “Investors can take comfort that
the company continues to be well positioned, benefitting from our well managed and resilient portfolio, with
growing contracted rents, 96% of which are linked to inflation, together with having 100% of our debt fixed at
a favourable rate of 3.19% until October 2025”.

Economic data

House prices fell by 0.9% to £268.3k in October, the first monthly decline since July 2021 according to the
latest Nationwide House Price Index (link). This took the Y/Y rate to +7.2%, from +9.5% in September. Recent
increases in mortgage rates meant that a prospective first-time buyer earning the average wage and looking to
buy a typical FTB home with a 20% deposit would see their monthly mortgage payment rise from c.34% of
take-home pay to c.45%, based on an average mortgage rate of 5.5%. This is similar to the ratio prevailing
before the financial crisis (below, right). Outlook: “The market looks set to slow in the coming quarters. The
outlook is extremely uncertain, and much will depend on how the broader economy performs, but a relatively
soft landing is still possible. Longer term borrowing costs have fallen back in recent weeks and may moderate
further if investor sentiment continues to recover. Labour market conditions are likely to soften, but they are
starting from a robust position. Moreover, household balance sheets appear in relatively good shape with
significant protection from higher borrowing costs, at least for a period, with over 85% of mortgage balances
on fixed interest rates. Stretched housing affordability is also a reflection of underlying supply constraints,
which should provide some support for prices”.

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