ST. MODWEN DELIVERS FURTHER PROGRESS IN EXECUTING NEW STRATEGY
Mark Allan, Chief Executive of St. Modwen, commented:
“We have had a good start to 2018 and our expectations for full year performance are unchanged. Our operational performance remains solid and we have made considerable progress in executing our new, more focused strategy that we launched a year ago. Drawing on the significant potential within our existing pipeline, this successful execution is starting to pave the way towards delivering a meaningful improvement in earnings and return on capital in the years ahead.”
Over the past six months we have continued to focus on delivering against our four strategic objectives: portfolio focus and capital discipline, accelerate our commercial development activity, grow our residential and housebuilding business, and cement and grow our regeneration reputation.
Despite continued uncertainties in the external environment and challenges in parts of the UK property market the outlook for our two key sectors, industrial/logistics and regional housebuilding, remains positive. Given our extensive land bank and the opportunity to recycle capital out of our existing assets, we are well placed to accelerate the delivery of our substantial pipeline using our own resources in the years ahead.
Portfolio focus and capital discipline
We have continued to shift our portfolio towards assets with the strongest structural growth prospects. In May we announced we had exchanged contracts to sell Longbridge Shopping Park and Wembley Central, which together represented the disposal of 27% of our retail portfolio on average 4% below book value. The £54m sale of Longbridge has completed since then, with completion of the Wembley disposal expected in the near future. These disposals followed the sale of the first phase of student housing at Swansea Bay Campus in February for £139m, which released £87m of capital net of an associated finance lease.
The two retail disposals at Longbridge and Wembley plus a small retail disposal in Liverpool mean we have already achieved c.95% of the lower end of our target to sell £100-150m of retail and small assets during 2018. Since announcing our new strategy twelve months ago, we have now sold over £600m of assets (excluding newly built homes and land transferred to St. Modwen Homes), representing 38% of our portfolio a year ago. On average, these disposals were in line with book value.
We are currently marketing a portfolio of small assets and have some further small retail disposals under offer, so we are confident we will reach our disposal target for the full year. This sales activity allows us to keep our borrowings firmly under control as we reinvest in accelerating the delivery of our pipeline.
Accelerate our commercial development activity
We have continued to prepare our future pipeline in line with our objective to grow our industrial/logistics development activity by up to 25% per year by 2020. During the half year we secured outline planning consent for our 1.0m sq ft scheme at Chippenham Gateway, adjacent to junction 17 of the M4, and cleared planning conditions and finalised consents for a 0.2m sq ft scheme at Gatwick, adjacent to junction 10 of the M23. With a potential ERV of over £8m, these sites are expected to become an important part of our income portfolio in the medium term, alongside our other key strategic sites.
With a yield on incremental capex of c.9%, recycling capital into these and other industrial/logistics projects in our existing pipeline provides a material pick-up in income compared to the yield on the retail and smaller assets we sell, whilst at the same time we build up a higher quality, more efficient portfolio.
We continue to see good occupier demand for our space and agreed terms on £2.3m of development lettings during the period, on average in line with our expected ERVs. These lettings contribute to building up our retained industrial/logistics income portfolio and offset the reduction in rent from the disposal of older, less efficient retail and smaller assets.
Grow our residential and housebuilding business
The market for new-build homes in the UK’s regions has remained robust. Sales volumes for St. Modwen Homes increased 31% vs the same period last year to 302 units sold. The business is now sales active on 19 outlets, with an additional three outlets coming forward in the second half of the year. In line with our target, we continue to expect up to 25% growth in sales volumes for the full year.
Sales activity in our JV with Persimmon continues to reduce in line with the planned wind-down of the JV over the next two years. We expect that strong growth in St. Modwen Homes profits will more than offset the reduction in JV profits for the full year although this will be weighted slightly towards the second half.
We continue to see good demand for residential land from third-party housebuilders. Proceeds from the sale of oven-ready land totalled £27m during the six months (1H17: £14m), on average at or above book value, leaving us well on track to achieve residential land sales at least in line with the £56m reported last year.
In line with our strategy to deliver on the PRS opportunities in our pipeline without building up a long term asset management platform for these assets ourselves, we released our capital early from our 207-unit PRS scheme at Uxbridge by way of a £75m forward-sale in March. This has allowed us to accelerate delivery of the next phase of 101 apartments at Uxbridge, which will be built for private sale by St. Modwen Homes.
Cement and grow our regeneration reputation
We continue to progress our existing major regeneration projects. The disposals of the first phases of development at Swansea Bay and Longbridge during the six months released £141m of capital, allowing us to bring forward the next phases of development at these flagship schemes – both of which are c.50% developed. At Wantage we are now building the first units of this 1,500-homes scheme.
St. Modwen will host a Capital Markets Day today, for which a presentation will be published on our corporate website. The Company intends to announce results for the half year on 3 July 2018.
St. Modwen Properties PLC
Mark Allan, Chief Executive
Tel: 0121 222 9400
Rob Hudson, Chief Financial Officer
Kathryn Edwards, Interim Head of Corporate Communications
Tel: 020 3727 1000