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 7, 2023

LORD, SOHO, HOME, SAFE | Economy – house price declines now close to 5%, Halifax

Company news

Lords Group Trading (LORD, 69p, £113m mkt cap)

Building materials distributor. HY (Jun) results. Rev +3.9% (-4.4% LFL); adj PBT -8.3%, £7.7m; stat PBT -3.4%, £5.6m; adj EPS -12.4%, 3.4p; interim div unch, 0.67p; net debt, £38.0m (31 Dec, £19.4m).

Trading: “The group has delivered a resilient performance in H1 and the Board believes it is currently outperforming the market but is not immune to persistent macro-economic pressures. Since our last update, persistent high levels of inflation, increasing interest rates and weaker consumer confidence have continued to reduce demand in the key end markets of private RMI and new build housing, and consequently demand for the group’s products”. Merchanting rev +3.3%, £109m (-5.1% LFL); Plumbing & Heating +4.5%, £113m (-3.8% LFL). “The LFL revenue performance is reflective of deflation in several core product categories alongside more selective customer profitability decisions supporting continued margin enhancements. Trading towards the end of Q2 2023 was more challenging”.

Outlook: “Given the continuing challenging backdrop, the Board now anticipates demand will remain at current levels throughout the remainder of H23.  Accordingly, the Board expects full year revenues of approximately £450m and adjusted EBITDA of approximately £27m [previous consensus, £474m and £31m]. The Board remains confident of delivering its strategic targets of £500m revenue by 2024 and EBITDA margins of 7.5% in the medium term, with Lords taking market share, as well as being an acquirer of choice in the market”.

Triple Point Social Housing REIT (SOHO, 57p, £225m)

Real estate investment trust investing primarily in newly developed social housing assets, with a focus on supported housing. HY (Jun) results. Annualised rental income +8.3%, £40.5m; adj EPS -14%, 2.2p; EPRA TNAV, 111p (YE 22, 109p); portfolio value (497 properties) +0.8%, £675m; LTV, 37.5% (36.8%).

Trading: Increase in TNAV reflected an increase in the value of the portfolio and the accretive impact of the £5m share buyback programme over the period. Portfolio valuation reflected the positive impact of strong rental growth on valuations, partially offset by an outward movement in yields reflecting market conditions. Maintained an Investment Grade Issuer Default Rating from Fitch of ‘A-‘ (Stable Outlook) with a senior secured rating of ‘A’. A portfolio of four properties was sold for £7.6m, in line with book value of £7.9 million and representing an increase of £0.7 million (9.6%) compared to the aggregate purchase price paid by the group. 88.1% of rent due was collected during the period, and 25 out of the 27 lessees recorded no material rent arrears. Post the period end, the Investment Manager has made progress in respect of both Approved Providers which have material rent arrears.

Outlook: “Whilst capital markets remain challenging, our focus remains on the operating performance of our portfolio which we expect to demonstrate continued operational and valuation resilience. We are well placed to continue to deliver on our return targets to investors. We expect further strong rental growth, which helps to underpin the group’s property valuations and increases income. This, combined with our long-term, fixed-price debt means that we do not need to raise additional capital or refinance to meet return expectations in the near term. We are committed to addressing the performance of the share price, and to work to narrow the discount to prevailing NAV. The group continues to report strong operational and financial performance and we are increasing our efforts to ensure our shareholders and the wider investment community understand our compelling fundamentals. Further, we critically consider capital allocation, recycling capital into what we evaluate to be accretive investments”.

Home REIT (HOME, suspended)

Real estate investment trust funding the acquisition and creation of properties providing accommodation to the homeless. Tenant update. “Supportive Homes CIC, a tenant of 209 properties in the company’s portfolio representing 11.3% of rent demanded in August 2023, has today entered into creditors’ voluntary liquidation. The tenant is non-performing and the creditor’s voluntary liquidation unlocks the ability for the company to re-tenant properties or carry out other asset management initiatives as soon as possible. Furthermore, discussions with other prospective tenants to take on new leases on the properties have already commenced”.

Safestore Holdings (SAFE, 862p, £1.878m)

UK-focused self-storage group, with stores in Paris, Barcelona and Netherlands. Q3 (Jul) trading update.

Guidance: “After very strong comparative quarters in the last two years, the group has delivered further like-for-like revenue growth as well as what we believe to be industry leading REVPAF in our key markets. Whilst we have seen some softness in the UK’s business customer segment, reflective of a weaker macroeconomic environment, trading with our domestic customers and the remainder of the business has been robust.  Our strong and flexible balance sheet has significant funding capacity, allowing us to continue to consider and execute strategic investments as and when they arise. Whilst the pipeline and associated financing will be dilutive to earnings in the near term, the returns generated by new stores are reliable and we are confident that it will be significantly value-accretive as the new sites mature. For 2023, we anticipate that the business will deliver adjusted diluted EPRA EPS towards the lower end of the range of analysts’ forecasts of 47.3p to 50.3p”.

Trading: Rev +7.0% YTD, £167m; average storage rate YTD +3.1%, £30.27 (Q3 Y/Y +3.5%).

Economic data

House prices. Average house prices fell by -1.9% in August, the largest monthly fall since November, taking the Y/Y fall down to -4.6%, from -2.5% in July, according to the latest Halifax House Price Index. The typical UK home now costs £279,569, down 4.8% since the September peak, at the time of the mini-budget, and back to the level seen in early 2022, although average prices remain around £40,000 above pre-pandemic levels. Southern England and Wales seeing most downward pressure on property prices, Scotland showing greater resilience. According to the UK’s largest mortgage lender, “We do expect further downward pressure on prices through to the end of this year and into next, in line with previous forecasts. Income growth has remained strong over recent months, which has seen the house price to income ratio for first-time buyers fall from a peak of 5.8 in June last year to now 5.1. This is the most affordable level since June 2020, and will be partially offsetting the impact of higher mortgage costs”.

Halifax House Price Index

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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