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 1, 2023

LORD, SOHO | Economy – House prices continue to decline, Nationwide | News – Concrete fears to close 100+ schools; M&S to appeal Oxford Street rebuild ban | Fortnight ahead

Company news

Lords Group Trading (LORD, 65p, £107m)

Building materials distributor. Acquisition. Alloway Holdings acquired for a total net consideration of £2.2m. Established in 1971, Alloway Timber is an independent family-run merchant operating from five sites in the South East of England at Mitcham, Cheam, Byfleet, Kingston and Putney. The business specialises in providing timber and general building supplies and will join the Lords Builders Merchant network, taking the brand to 17 locations in the South East of England. The acquisition is expected to be earnings accretive from 2024 financial year, and will achieve a strong return on capital employed as synergies are realised. For year ended 31 December 2022, Alloway Timber delivered £15.9m of revenue and c. £(1.0) million EBITDA. In the medium term, Lords expect the Alloway Timber branches to reach the margins achieved by the wider Merchanting division. £1.5m is payable immediately and £0.7m deferred 12 months from entry into the sale and purchase agreement, with £0.25 million payable to the vendor and £0.47 million to HMRC for corporation tax liabilities in Alloway Timber triggered by the transaction. The acquisition consideration is net of freehold property disposal of £3.6m which occurred concurrently with the acquisition.

Triple Point Social Housing REIT (SOHO, 57p, £223m)

Real estate investment trust investing primarily in newly developed social housing assets, with a focus on supported housing. Sale of properties. The sale of four specialised supported housing properties completed for an aggregate consideration of £7.6m to a private UK real estate investment firm. The aggregate consideration reflects a gain of £663,136 (9.6%) against the aggregate purchase price (excluding transaction costs) and is principally in line with the portfolio’s book value of c.£7.9m as at 30 June 2023As at 30 June 2023, the blended net initial yield of the sale portfolio was 5.75% and the weighted unexpired lease term was 19.3 years. Strategy: “Following the publication of the group’s interim results on 7 September and feedback from shareholders, the Board will determine the best use of the sale proceeds, which may include the repayment of debt and/or the return of capital to shareholders through further share buybacks”.

Economic data

House prices fell by 0.8%, seasonally-adjusted, to £259.1k in August, bringing the Y/Y decline since the August 2023 peak to 5.3%, from -3.8% in July, according to the Nationwide. This was the largest annualised decline since 2009, according to the mortgage lender. Cash transactions and first time buyer (FTB) are, however, are proving more resilient, according to the analysis. In the first half of 2023, the total number of completed housing transactions was nearly 20% below pre-pandemic levels in 2019 and c. 40% lower than in the first half of 2021 – with the latter reflecting the boost to activity from pandemic-related shifts in housing preferences, the stamp duty holiday and ultra-low borrowing costs. Home mover completions (with a mortgage) in the first half of 2023 were 33% lower than 2019 levels, whilst first-time buyer numbers were c. 25% lower. Buy-to-let purchases involving a mortgage were nearly 30% below pre-pandemic levels. By contrast, cash purchases were up 2%.

House purchase transactions by buyer type

In other news …

Building safety. More than 100 schools are facing the immediate closure of buildings constructed from potentially dangerous aerated concrete panels, The Department for Education has widened the scope of closures due to the use of reinforced autoclaved aerated concrete (RAAC) during construction. Previously 50 schools had been identified as needing mitigations in place this year, including additional funding for temporary accommodation. In guidance issued just days before the new school year, education chiefs have said that all areas and buildings with RAAC must close regardless of earlier risk ratings. Education chiefs confirmed yesterday they had contacted a further 104 schools and colleges where RAAC is currently present to ask them to vacate spaces or buildings that are known to contain RAAC. Up to 20 schools may have to close altogether as the life-expired lightweight concrete material is used for most of their school buildings. Hundreds of schools across the country were built with reinforced autoclaved aerated concrete between the 1960s and 1990s, with the buildings having a life span of around 30 years.

Planning. M&S has launched a legal challenge against Levelling up Secretart Michael Gove’s decision to refuse plans to demolish and rebuild its flagship store on Oxford Street, Gove’s decision in early August went against the recommendation of his planning inspectors. Plans for a new ten-storey steel and glass office complex on the site have been approved by Westminster City Council the GLA and planning inspector David Nicholson. But Gove and his department disagreed with the planning experts after campaigners said the building should be refurbished because of the amount of embedded carbon it contains. Sacha Berendji, Operations Director at M&S said: “We believe the Secretary of State wrongly interpreted and applied planning policy, to justify his rejection of our scheme on grounds of heritage and environmental concerns”.

Fortnight ahead

Construction and property company and economic news

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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