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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December 19, 2023

LXI, LMP | Economics – Housing planning consents hit record low | News – Gove to unveil new planning laws; 140,000 homes to be de-carbonised

Company news

LondonMetric Property (LMP, 196p, £2,136m mkt cap)

Real estate investment trust, owner and manager of grocery-led logistics sites.

LXi REIT (LXI, 104p, £1,776m)

Real estate investment trust, investing in commercial property on long inflation-linked leases, typically 20 – 30 years.

Possible all-share merger (announced yesterday afternoon). Following recent media speculation both boards confirm that they are in discussions regarding a possible all-share merger of the two companies, in which LondonMetric would acquire the entire share capital of Lxi.

Outlook: “The boards of LondonMetric and LXi see the potential to bring together two companies with complementary strategic approaches and a key focus on delivering compounding income-led total shareholder returns through the cycle. The Possible Merger would result in: a UK-focused triple net lease REIT of scale with a pro forma gross asset value of approximately £6.4bn and market capitalisation of approximately £3.9bn which is expected to provide improved share liquidity and better access to capital; a combined portfolio aligned to structurally supported sectors with approximately 93% exposure to the logistics, healthcare, convenience, entertainment and leisure sectors and with income longevity and security; and economies of scale and operating efficiencies, targeting sustainable earnings and dividend progression. There can be no certainty that any firm offer will be made nor as to the terms on which any firm offer might be made”.

Economic data

Housebuilding. The number of new homes granted planning permission fell by 28% Y/Y to a new record low in the third quarter, according to a report by the Home Builders Federation. The latest Housing Pipeline report shows 50,316 homes were consented in England during Q3, down 12% on the previous quarter. 2,447 projects were granted planning permission, a 3% Q/Q and -19% Y/Y. In the year to September, the number of units gaining permission was 245,872 – a 15% drop on the previous year and the lowest for a 12-month period since Q3 2015. The figures come ahead of expected sweeping changes to the National Planning Policy Framework expected to be announced today (see below) which, according to the HBF “will inevitably lead to a further decline in planning permission approvals [which] might see housebuilding in some areas completely collapse. The report confirms industry warnings that an increasingly anti-development policy environment and worsening economy will see the number of homes built in the coming years fall to record low levels”. The housebuilders’ body points to research it commissioned by consultancy Lichfields earlier this year predicted that these proposed changes to the NPPF could cause a drop of 77,000 homes a year.

In other news …

Housing politics. Housing Secretary Michael Gove will threaten to take action against councils that miss deadlines to submit their housing plans in a speech today designed to highlight the Government’s commitment to build new homes across England, but will also confirm that the government is watering down housing targets, Guardian. Mr Gove will say he will “call out” local authorities that fail to publish their future development plans with a threat to intervene if necessary. A source at the Department for Levelling Up, Housing and Communities said (in contrast to the views of the HBF, above): “We have been clear that the government is on the side of the builders and not the blockers – councils must play their part and deliver the homes this country needs, without concreting over the countryside. The National Planning Policy Framework, which is being published in full today, will confirm that the Government will allow local authorities not to use a population-based formula to set their multi-year housing plans. Instead, they will be able set far lower housebuilding targets if they can argue that sticking to the formula would have changed the character of an area or necessitated building on greenbelt land. Officials said they had already committed £42.5m to help tackle planning backlogs and speed up decision making. Government figures published last month show that 234,400 additional dwellings were added to England’s housing stock in 2022-23 – almost exactly the same number as the previous year. According to The Guardian, Gove’s speech caps a year-long consultation which Gove hoped would kickstart housebuilding in England but which he has had to rewrite under heavy pressure from backbench Conservative MPs.

Energy retrofits. The Government has allocated an extra £1.25bn to the Social Housing Decarbonisation Fund which, with match funding, will see around £2.5bn pumped into insulating or retrofitting 140,000 homes between 2025 and 2028, The Government announcement on how it intends to spend the £6bn first unveiled in 2022 Autumn spending statement, also saw an extra £1.5bn allocated to fund heat pump upgrades.

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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