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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January 31, 2024

RESI | Economics – House prices rise again, Nationwide

Company news

Residential Secure Income Fund (RESI, 52p, £96m mkt cap)

Real estate investment trust investing in affordable shared ownership, retirement and local authority housing. Net asset value and corporate update, Q1 (Dec) 24. EPRA TNAV, 80.1p (Q4 23, 81.8p); IFRS NAV, 85.9p (91.1p). Valuation decline as a result of a 10 basis point outward yield shift across the portfolio – “focused on direct leases with pensioners and part homeowners”. LFL rental growth, +1.3%; rent collection, 99%. Q1 div, 1.03p “in line with FY 24 target”. Exchanged on sale for £5.8mn of assets in line with September 2023 book value, with completion scheduled to occur by early April 2024; as announced at year end, proceeds will be used to pay down floating rate debt; remainder of the Local Authority portfolio under offer with due diligence advancing.

Outlook: “Strong rental inflation-linked growth expected to continue, underpinned by wage/pension growth. Focus on driving retirement performance including rationalising portfolio footprint, driving rents, and reducing leakage. We are continuing to review options for further disposals which support maximising shareholder value. There is a particular shortage of independent retirement accommodation for growing elderly population and accessible homeownership options providing significant opportunity to scale these platforms and drive returns”.

Economic data

House prices. Leading building society Nationwide reports that house prices have risen by 0.7% (consensus, +0.1%) on a seasonally-adjusted basis to £257k, bringing reducing the Y/Y, non-seasonal decline to a 12-month low of -0.2% (consensus, -0.9%), from -1.8% in December and a maximum of -5.3% in September. It is the fifth consecutive month of positive or no-change moves following “encouraging signs for potential buyers recently with mortgage rates continuing to trend down … with investors becoming more optimistic that the Bank of England will lower rates in the years ahead”. Affordability continues to improve, on both an income multiple (see below) or payments basis. According to the lender, if rates for 80% LTV trend down to either 4% or 3% respectively, this would reduce the monthly proportion of monthly take-home pay from 38% in December to 34% at the higher rate or close to the long-term average of 30% at the lower. “While a rapid rebound in activity or house prices in 2024 appears unlikely, the outlook is looking a little more positive”.

UK Earnings to price ratio
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