St. Modwen pleased with development and disposal progress ahead of results

The FTSE 250 company said that, in line with its strategic plans, in the second half of the year it continued to make “good progress” with its pipeline of high quality development opportunities; focussing predominantly on its A1 industrial and logistics portfolio.

Additionally, over the past six months, the board said it saw continued occupier demand for its product, with the proportion of its committed industrial and logistics pipeline being speculatively developed now 59%, down from 73% in May.

“We expect our commercial development profits for the year to be in line with plan,” the board’s statement read.

On the residential front, St. Modwen said the UK housebuilding market remained “resilient” throughout 2017, particularly in the regions.

St. Modwen Homes was currently active on 16 sites across the country, and experienced “robust demand” for new homes with sales volumes for the year expected to be in line with expectations, growing by approximately 43% over the previous year to 694.

In line with the board’s intentions, the associated growth in profits was expected to at least offset the lower profits from the Persimmon joint venture as its activity levels reduce.

“During the year, the appetite for land from third party housebuilders has remained steady and we have sold or agreed for sale 47 acres of land, representing 1,160 units, for proceeds of £58m,” the board explained.

“In line with our strategic plans, we have also been preparing land ready for sale in preparation for an anticipated acceleration in 2018.”

Its focus on regeneration schemes was also paying off, with the board reporting that throughout the year, the company continued to pursue high-quality acquisition opportunities that complemented the firm’s skills in delivering infrastructure and new communities, while also reflecting the government agenda for developing more housing and employment spaces.

Earlier in the year, St. Modwen secured two new large mixed-use residential-led developments - the first being Kingsgrove, Wantage, where it signed a development agreement to deliver a mixed-use community of 1,500 homes.

The company also very recently signed a development agreement to deliver Buckover Garden Village - a new community of up to 3,000 homes in Gloucestershire.

“Together with our development partner, the Tortworth Estate, we anticipate submitting a planning application during the first half of 2018.”

At the Bay Campus, Swansea University, construction of the next phase of student accommodation and academic facilities was advancing in line with plan, and the sale of the first phases of student accommodation was now “well progressed”.

“We expect to secure a disposal in the first half of 2018.”

Looking at the portfolio, St. Modwen noted that - in line with its strategic focus - it completed the disposal of Nine Elms Square in 50/50 joint venture with VINCI in the summer for £470m, which was in line with book value.

The company was now continuing to progress with the rest of the “landmark” multi-phased project which, in addition to the construction of the new 500,000 square foot market facilities over a 10-year period, would also comprise three “distinct character” areas featuring a mix of residential, commercial, retail and leisure units.

Its share of the deferred tax relating to the site sold was £18.5m, which would therefore no longer be added back to EPRA NAV per share and represented a reduction of approximately 8p.

“The proceeds from the transaction will be used to reduce group borrowings as well as fund ongoing development activity across the group,” the board said.

“We continue to recycle and rationalise our portfolio, evaluating which of our assets to prepare for sale in the first half of 2018 and, at the same time, identify for retention a significant proportion of our commercial development pipeline.”

At the half year, it identified a smaller asset portfolio of approximately £100m - representing £4m of associated net rental income - and its intention to dispose of that within the next few years.

St. Modwen’s newly established asset management team had made “good progress” on the disposal of those assets, with more than £20m of the portfolio now sold, representing approximately £0.5m rental income.

“We are now evaluating the remainder of the portfolio to establish the optimum approach to disposing of the remaining properties.”

In addition, the board said it was actively progressing discussions on the refinancing of its existing £488m of secured bank bilaterals, replacing them with a similar quantum of unsecured bank finance to give us greater operational flexibility.

The company confirmed its intention to release results for the full year on 6 February.

“We have continued to advance our new strategic objectives since announcing them in June 2017 and have made solid progress in terms of accelerating delivery and focusing activity towards the higher performing industrial and logistics sector and our St. Modwen Homes business, both of which are experiencing excellent growth,” said chief executive Mark Allan.

“At the same time, St. Modwen's diverse portfolio and broader business has continued to perform well, demonstrating resilience and growth, and signalling that the full year results will be in line with expectations.”