St Modwen moves where the growth is

In short, this has meant moving away from holding London residential land and retail assets, and shifting more into industrial logistics and housebuilding. And what a difference a year makes. By the time the company announced half-year results to the end of May, it made disposals totalling £635m over 12 months, and despite the downbeat market view on the retail sector, the prices achieved on retail properties were at a modest 4 per cent discount to November 2017 book values. More importantly, just 18 per cent of the £1.1bn portfolio now represents retail-related assets.

Some of the proceeds from the sales have been used to reduce debt, which together with a revaluation gain reduced the loan-to-value ratio to 24.2 per cent at the half-year state, compared with 33.1 per cent a year earlier, and this is expected to decline further over time. Further disposals are likely to take place in the second half, with around £70m of property under offer. This underpins managements expectation that St Modwen will exceed a target to sell £100m to £150m of retail and small assets over the year. Meanwhile, about two-thirds of residual retail assets are expected to be disposed of over the next two years.

Inevitably, these disposals will lead to short-term volatility in rental income while proceeds are reinvested. However, total returns from investments in urban logistics – warehouses for distribution of e-commerce related sales – are expected to be significantly higher than those generated in retail.

A hefty weight was lifted from the development arm with the sale of the first 10 acres of land at New Covent Garden which generated £190m, and was followed by the release of £141m of capital from two other regeneration schemes at the Swansea Bay student campus and the shopping park at Longbridge.

St Modwen is also exploiting another key growth area in housebuilding. Although relatively modest in relation to group income, progress both at selling oven-ready land to housebuilders and also building at St Modwen Homes has been significant. Consented land sales of £27m in the first half were nearly double the previous first half, while a 207-unit private rental scheme in Uxbridge was forward sold for £75m, which means the next phase of development of 101 apartments for private sale can be brought forward by as much as 18 months. On the housebuilding side, units sold in the first six months of the year were up by nearly a third to 302 units, with average private sale prices of £283,000 at the more affordable end of the market. Growth at St Modwen Homes is expected to be enough to offset declining revenue from the Persimmon joint venture which is winding down over the next two years.