Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Solid set of results in line with consensus and market expectations.
- Close to 90% of revenue derived from the UK and Irish government, ensuring strong income security.
- GBP1.8 million of organic like-for-like rental growth, equating to about 2.4% annualized growth.
- Cost of debt remains unchanged at 3.3%, with steps taken to reduce cost ratios further.
- Dividend increased by 3%, marking the 28th consecutive year of growth.
Negative Points
- Revaluation deficit of GBP40 million, driven by yield expansion and interest rate environment.
- GBP800,000 of additional property costs due to a one-off write-off for a development that didn't progress.
- Challenges with the district valuer causing delays in rent review settlements.
- Loan-to-value ratio at 48%, which is on the higher end of their target range.
- Limited transaction activity in the UK and Ireland investment markets, with some competition in Ireland.
Q & A Highlights
Q: John Cahill from Stifel. I wanted to ask you about the partnerships approach, which is a really interesting way of sort of trying to deal with the district valuer. But at the South Kilburn site, I think you said there's a capital contribution, which is the help. But in your results, you mentioned that that could come in the form of a rental top-up with some potential future schemes. Have you any feel for -- would the district valuer consider that top-up rent to be the true figure?
A: Mark Davies, Senior Non-Executive Independent Director. Yes. Without breaching too many confidences, it's a very good question. Yes, in Spilsby, I talked about the rent at over GBP300 a square meter. Clearly, we're very encouraged by that. In terms of the mechanics and the design that sits around it, clearly the DV would like to believe that the rental tone is the lower level before top up, not the actual level that we will inevitably receive. So, there's that constant on resale, which you'll obviously be very familiar with. In fact, I think you mentioned it in your note earlier this morning. And that often remains the challenge. And if Wes Streeting is able to deliver on his strategy, he's going to have to bring treasury with him on that journey is and then get his colleague, Rachel Reeves to ensure that they're working collaboratively. If we're able to work together in partnership, not just with government but house builders and ICVs and local authorities as we have done in Brent with South Kilburn, then that's going to be good for everybody, not least actually good for the UK government because of the cost benefit dynamic equation that I alluded to earlier. So, clearly, we're progressing with these discussions optimistically, but there's always that degree of caution when the DV has the ability just to put the brakes on.
Q: Andrew Sowders from Shore Capital. We just looked at the outstanding rent reviews that you mentioned earlier in the presentation. Can you give us some sort of idea about the time frame over which you think those might be settled and perhaps the uplift that you'd be targeting? And also, perhaps you could just comment on what's happening in terms of current rent reviews coming up with the DV and are we getting back to a more business-as-usual approach?
A: Richard Howell, Chief Financial Officer, Executive Director. Yes. First the key thing for our sector and probably the most frustrating thing, it does take an awful long time to get some moves review settled. So, most reviews, which we settled in the first six months of FL in the years prior to '22. So, it can typically take two to three years to get these amounts agreed. That said, when they do get agreed, they do get backdated to the original data and rent review. So, to some extent, time is of the essence. But we're obviously very keen to keep accelerating these, but we do face these headwinds, as Mark has already mentioned, with the district value agreeing these. But we would have thought in terms of volume, we should start to see reviews from '22 and '23, which were the periods when inflation was significantly higher, starting to come through second half of this year and into next year, which we would hopefully start to show the real push in open market value rental values started to come through into the numbers.
Q: James Carswell from Peel Hunt. Just on the asset management projects, I mean, you're clearly making pretty attractive returns, and it sounds like more capital might be allocated there going forward on a proportion of the capital that's being invested. I'm just wondering, do you have similar kind of battles and negotiations in terms of that incremental rent you get on the asset management projects? Or is that a much simpler kind of negotiation with the distal compared to the development side?
A: Richard Howell, Chief Financial Officer, Executive Director. Yes, good second question. First question is more straightforward. I mean, you can see from the slide, we've got a lot of activity on the asset management side. And we'd like to do more clearly because when we do this, we get a good return on capital, and it's good for the asset, good for the story and improves our assets and makes them more sustainable for the future. I could talk about some live examples that I've experienced in my short time with the company. Let me think if I can find a good one, which specifically addresses your question. Okay. So, I was in Wakefield last Tuesday, and it's actually quite an easy place to get to, believe it or not. And we've owned an asset there for a long time. And we're having an engagement with the partners, the 12 partners in that practice. And the local ICB, we've got great relationship with. And this conversation has been going on for some time. And we've managed to get there and get that scheme to a level, a rental level where we can commit and we can invest. It has taken quite a long time to get there. So, I can't sit here and say it's easier to do it. But what I can say, having gone to that meeting with all the stakeholders in the room, you're kind of pushing on an open door. But sometimes the DV comes along and is the key sort of thing. So, in that particular case, well, our Board approved it this week. So, we're going to go ahead with that investment. And it's one of the schemes in the pipeline. I'd make that sound perhaps easier than it probably is because there's a history, this particular scheme that goes back before my time. But the thing that was very obvious to me, you've got all these stakeholders in the room all trying to do the same thing. And if we can get the rental levels to where they need to be, then everybody is happy. And our cost of capital is modest compared to some. So, we're not looking to be unreasonable, but we need to make a return for our shareholders. That's kind of what we're ultimately here to do. So, a slightly long answer. And hopefully, I've addressed it for you, James. But I'm sure if we haven't, we can pick that up separately.
Q: James Carswell from Peel Hunt. And then Richard mentioned the investment market seems to be stabilizing in terms of yields. I mean, are you seeing more new entrants coming into the market? Are you seeing more transactions happening? Just maybe a bit of an update on the investment market.
A: Mark Davies, Senior Non-Executive Independent Director. Yes, there's been clearly a lack of transaction activity in the UK and in Ireland. We do hear about new entrants coming in. We do hear more about investors wanting to come into the space, often of an institutional nature would love to be in the sector, to love to be where Harry was 30 years ago and try and get into this space because the barriers to entry are pretty high. It's technical. You need to have scale. And obviously, we have that. So, we've got a bit more competition in Ireland, for example. So, we've seen
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
