Urban living suits cheap St Modwen

Industrial and logistics accounted for 39 per cent of the portfolio by value at the end of May, up from 33 per cent six months earlier. Meanwhile, around 80 per cent of the development pipeline consists of ‘last mile’ delivery warehouses where supply of properties is short. The group is seeking to capitalise on the growth of ecommerce and shortage of logistics space, adding 0.3m square foot (sq ft) of space during the first half - 91 per cent of which was already let or under offer - and with a committed pipeline of 1.6m sq ft. 

The space completed during the first half is expected to deliver a yield on cost of 7.8 per cent once fully let. The total pipeline has the potential to deliver over 15m sq ft of space over the long term, of which almost 10m sq ft has planning. The group expects the latter to produce around £60m of estimated rental value, equivalent to a yield on cost of around 8 per cent. 

St Modwen Homes - which makes up a fifth of the group’s property assets by value - grew unit sales by just over a third during the first half, against an annual target growth rate of 25 per cent. The group has been repositioning its outlets away from London and the south-east, where price growth and transaction levels have decelerated more than the national average. However, that also meant the average sales price fell by 5.7 per cent during the first half, although on a like-for-like basis, the private sales price rose 2.5 per cent. Operating margins have also held up, rising to 14.8 per cent, from 14.4 per cent in the prior year, and edging closer to management’s target of 16 to 17 per cent. 

Within the strategic land and regeneration business, management is working to improve capital efficiency, selling £18m of non-core assets during the first half following heavy disposal activity in 2018. That meant non-core retail accounted for just 5 per cent of the portfolio at the end of May, down from 16 per cent at the start of 2018. There are plans to sell the remaining non-core assets over the next two to three years, which should limit the retail drag on revaluation gains.