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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May 30, 2024

SPR, LMP, Special Opportunities REIT IPO | Economic research – Prices stabilise as more homes enter market, Zoopla

Company news

Springfield Properties (SPR, 94p, £112m mkt cap) – SPR is a client of PERL

Scotland’s only quoted housebuilder. Contract. New contract, worth £6.3m, signed with the Wheatley Group for the delivery of affordable housing. Construction will commence immediately and is expected to complete by October 2025, with the majority of the revenue to be recognised in the Springfield’s next financial year. According to the Group: “This new contract marks another great step for us in affordable housing, building on the excellent momentum with multiple recent contract wins and is a good way to end our current financial year in this area of the business. We are excited to once again be working with the Wheatley Group, a long-term partner of Springfield, to deliver these vitally important affordable homes. With our strong, established relationships with affordable housing providers across Scotland and a large high-quality land bank, we look forward to updating the market on further progress in this area in due course”.

LondonMetric Property (LMP, 199p, £4,053m)

Real estate investment trust, owner and manager of grocery-led logistics sites, recently merged with LXi REIT. Sale of properties. Seven properties sold in separate transactions for £31.3m, reflecting a blended net initial yield of 7.0% and a 3% profit over prevailing book values. They include £18.3m of non-core LXi REIT assets, which have been sold at 5% ahead of prevailing book values. The sales comprises an Asda foodstore in Scotland; retail park in Ipswich; car showrooms in Edinburgh and Cardiff; a B&M retail store in Stourbridge; and a Travelodge hotel and a pub.

Outlook: “We have exited these non-core assets and reinvested the proceeds into much higher quality assets, which offer superior rental growth potential. We are continually looking to upgrade the quality of our portfolio and exit lower growth assets outside of our core sectors or those that do not meet our return criteria. As such, we expect to announce further disposals shortly”.

Special Opportunities REIT (pre-IPO)

Special Opportunities REIT (SOR) is targeting a fundraise of £500m, comprising an initial placing, an offer for subscription and cornerstone subscriptions of ordinary shares at an issue price of 100p per Ordinary Share – Link to Publication of IPO Prospectus (restrictions apply). SOR is a new internally-managed REIT “seeking to capitalise on the recent dislocation in UK real estate capital markets to deliver highly attractive total returns”, with its proposed admission of its shares to the Official List of the FCA and to trading on the standard segment of the London Stock Exchange’s main market. “The Company’s proposition is to benefit from both: the cyclical nature of the UK real estate market through opportunistic investment and active management of commercial properties, investing at what it believes is the bottom of the market; and a unique set of circumstances meaning that it believes very high-quality properties are being sold by distressed and/or highly motivated sellers, often at less than their already depressed current market values. The Company’s management team has a significant pipeline of portfolio and single asset deals against which it expects to rapidly deploy and gear the IPO proceeds; the depth of the pipeline and the relative lack of competition should enable the Management Team to be highly selective. The Company will focus on high-quality, but under-managed, UK commercial property assets with low and reversionary rents and structurally supported sub-sectors, including student accommodation, industrial, data centres, retail parks and budget hotels, where rental growth is expected to outperform”. The trust is being led by Primary Health Properties founder Harry Hyman and former Workspace chief executive Jamie Hopkins. Admission and dealings in ordinary shares in the Initial Issue are intended to commence on 17 June.

Economic research

House prices. Zoopla’s latest House Price Index report estimates that average prices were unchanged at £264.3k between March and April and down by 0.1% Y/Y, as more homes were offered for sale than at any point in the last eight years. According to research by the property portal, there remains a clear divide between continued small annual price falls across southern England and the rest of the UK, where house prices are posting modest gains. Inflation ranges from a low of -3% in Ipswich to a high of 3% in Belfast (below, left). Following a shortage in the pandemic, the supply of 3 and 4-bed family homes has rapidly increased leading in turn to a large increase in the to the value of homes for sale. The average agent has 31 homes for sale, up 20% Y/Y. On a regional basis, Northern Ireland showed the highest Y/Y growth (+3.3%) followed by Scotland and North East (+1.4%); East of England had the highest decline (-1.6%) and London registered ¬¬ 0.5%. On the General Election, there are 392,000 homes in the sales pipeline, 3% higher Y/Y and Zoopla does not expect to see buyers already progressing pulling out. “The election announcement is likely to stall the pace at which new sales are being agreed in the coming weeks, as we run up to the start of the summer slowdown. Those who are earlier in the process may look to delay decisions until the autumn after the election is over. Overall, we don’t see the election having as big an impact as in previous years, particularly as there is not a huge divide in policy between the two main parties”.

house Price inflation
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