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Aim 100: 70-61

70. Telford Homes

Introducing an east London-focused housebuilder, and a very successful one at that. Over the past seven years, Telford Homes' (TEF) share price has risen by 250 per cent. Demand for apartments in particular remains robust, coming from owner occupiers, buy-to-rent and overseas buyers. More recently, Telford has adopted a capital-light business model that effectively derisks new construction by using a forward-funded process. In this way, Telford will build apartments for an institutional investor or housing association and the cost will be forward funded and paid for by the client. This means that Telford doesn’t have to use its own capital, so there is no risk if end demand for the apartments under construction suddenly evaporated.

This ‘build-to-rent’ model could account for around half the group’s business in the next few years. So far, four deals have been secured. The latest deal is through its joint venture with the Notting Hill Housing Group called Chobham Farm, and contracts have been exchanged for the first phase of open market homes in Stratford to be sold to Folio London, a subsidiary of the Notting Hill Housing Group. Telford will receive a net cash sum of £53.7m, and further phases will be launched at a later date. All in all, Telford is now developing 483 build-to-rent homes.

Gross margins on such business are lower, but not by much. For whereas gross margins on private sales average around 24 per cent, this is before deducting finance and marketing costs, which brings the figure down to around 16 per cent, compared with a virtually risk-free 12-13 per cent on build-to-rent. Despite the increased stamp duty on second homes and the uncertainty generated by the UK’s decision to leave the EU, demand for apartments close to London, but not commanding inner London prices, remains strong. A typical example is the off-plan launch of the City North Development in Finsbury Park, where 72 homes were sold in just three weekends, and with a combined value of £43m.

And there is more to come, with the forward order book standing at over £700m and the development pipeline double that. Telford has very little reliance on the Help-to-Buy scheme because purchases using this must be completed within six months of application, whereas Telford is selling apartments before they have even been built, and securing a decent deposit as well. Buy. JC

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