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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November 9, 2023

TW., BBY, GFRD, SHED, RGL | Economy – Chinks of light in housing outlook, RICS

Company news

Taylor Wimpey (TW., 116p, £4,082m mkt cap)

UK number two housebuilder by volume. Trading update.

Guidance: “We reiterate our full year [Dec] 2023 UK volume guidance in the range of 10,000 to 10,500 homes. Due to our focus on optimising price and sharp cost discipline, we now expect operating profit to be at the top end of our guidance range of £440 – 470m”. Continue to expect YE net cash of £500 – 650m.

Trading: “The market continues to be impacted by weak consumer confidence influenced by high mortgage rates and cost of living pressures. However, we have attractive and resilient locations which, combined with our enhanced customer and marketing tools, has enabled us to deliver a good performance against a challenging backdrop”. H2 to date private sales rate per outlet per week, 0.51 (2022, 0.51); excluding bulk sales, 0.48 (0.50); cancellation rate, 21% (24%). Order book -23%, 7,042 homes. YTD, operating from 239 sales outlets (234); currently, 227 (234). “As expected, we have continued to see build cost inflation moderate as the year has progressed. We continue to be highly selective in our land buying”; YTD approvals, c. 3k plots.

Outlook: “While the market backdrop remains uncertain, we are confident in the medium to long term sector fundamentals, with a meaningful supply and demand imbalance in UK housing”.

Balfour Beatty (BBY, 312p, £1,712m)

UK, US and Hong Kong construction and infrastructure group. Disposals. Two disposals completed from its Infrastructure Investments portfolio for a combined gain of £25.8m, in line with the group’s prior expectations for 2023 gains on disposal of £15 – 30m. They are: the 49.5% interest in UBB Waste (Gloucester) Holdings, the owner of the energy from waste facility at Javelin Park near Gloucester, to Urbaser Investment, and the 50% interest in the Moretti multifamily housing community in Birmingham, Alabama to Henssler Capital. “The proceeds from each sale are in excess of the Directors’ valuation as of 30 June, consistent with the strategy of optimising value through the disposal of operational assets, whilst continuing to invest in new asset opportunities. The group expects no further Infrastructure Investments disposals in 2023”.

Galliford Try Holdings (GFRD, 230p, £237m)

UK construction and infrastructure services group. Acquisition. AVRS Systems, a specialist mechanical, electrical, instrumentation, control and automation design and build contractor to the water and energy sectors, acquired for a total consideration of up to £7.0m. In the water sector AVRS has long term frameworks with key water sector clients as well as the Coal Authority and MoD, with operations closely aligned to Galliford Try’s existing business. In the energy sector AVRS, has long term client relationships providing in-house design, supply, installation and commissioning. “AVRS is an excellent fit with Galliford Try and the acquisition is a continuation of our previously disclosed strategy relating to the development of adjacent markets, as set out in our Sustainable Growth Strategy”. The initial acquisition consideration of £4.5m will be financed from existing cash resources.

Urban Logistics REIT (SHED, 116p, £547m)

Specialist UK ‘last mile’ logistics real estate investment trust. HY (Sep) results. Net rental income, +12%, £28.5m; IFRS profit, £16.9m (HY 22, £2.4m); adj EPS +2.4%, 3.46p; interim div unch, 3.25p; EPRA TNAV -12%,  161.7p; net debt, £318m (£248m); LTV, 29.3% (22.3%). Trading: Portfolio, 130 mid-box urban logistics assets;  9.7 million sq ft; valuation, £1,104m (125; 9.1m sq ft; £1,132m). Portfolio LFL ERV +1.4% over the 6 month period; 10% LFL rental increases across 10 lettings or rent reviews completed during the period. Vacancy rate, 6.8%, with 6.3% of the vacancy consisting of assets which were acquired with less than 12 months on the lease or recently completed developments.

Outlook: “Of all areas in commercial real estate, the logistics market retains some of the strongest fundamentals. Our belief is that the Urban Logistics sub-sector remains the most exciting part of this market. Given the interest rate environment, capital market transactions have been subdued, and corporate decision making around leasing activity has slowed. Despite this, the company’s portfolio valuation has remained stable over the six-month period, and we continue to see asset management opportunities and significant reversion within the portfolio. This is a testament to both our ongoing asset management ability and the quality of our asset selection. With low levels of debt, we believe the company is well placed to deliver returns to shareholders both from income generated from our high quality tenant base and capital growth delivered by our asset management initiatives”.

Regional REIT (RGL, 27p, £141m)

Real estate investment trust specialising in income generating regional UK office and industrial assets. Q3 (Sep) trading update. “The group continued to trade well during the period under review and has made good progress, completing a number of lease renewals during the quarter. Retention remained high with 73% of units up for renewal let to the same tenants. Renewals achieved a 6.2% uplift in rental income”. Since 1 January, the group has exchanged on 56 leases to new tenants totalling 96,355 sq. ft. and £1.6m pa of rental income when fully occupied, achieving a rental uplift of 11% against December ERVs. Of this total, 13 leases have been exchanged since 30 June 2023, totalling 25,859 sq. ft. and will provide £0.4m pa of additional rental income.

Economic data

Housing market. Most of the key indicators in the latest RICS Residential Market Survey remained negative in October, but the implied rate of decline narrowed. The headline index (% of respondents reporting rise minus % registering fall) for price moves in the past three months was -63, marginally less bad than the -67 for the period to September (below, left). There was more of a moderation in the buyer enquiries measure, -28 vs -37 in September and a recent low of -46 in June (below, right). This indicates that buyer activity continues to decline but a much slower rate than since the sharp rise in inflation, accompanied by rate rises, since late spring. The decline in vendor instructions is now down to a single digit negative reading. More positively, sales per surveyor over the rolling three-month period – an actual number rather than index – was up for the second month at 13.0, from 12.7 to September and a recent low of 12.1 for the three months to August. Price expectations for the following three months, an index again, was -41, from -46 in September and an improvement from the -60 in December, soon after the mini-budget. This, however, equates to an actual fall in expected prices of only c. 2% over the coming 12 months, followed by average annual rises of c. 2% for the following five years, RICS calculates.

Prices last 3 monthsNew Buyer Enquiries last month

Data for the lettings market remains strong, with balance of +33, although the least positive since Q2 21. Landlord instructions continue to fall (-18%). This imbalance od demand and supply supported a balance of +53 expecting further rent rises, but down slightly on the record high of +61 in the last quarter. Over the next twelve months, rents are projected to rise by around 4% in actual terms.


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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