Urban&Civic has released a strong set of full-year results that show a shift in national focus away from the London market.
Chief executive Nigel Hugill (pictured) provided a slightly more enlightened commentary in his chief executive’s statement on the status and outlook for the sector than most.
Here are some of the best bits
On Urban&Civic
“We are old enough to know that circumstances shoot down the cavalier but with assets up, profits up and a conservative balance sheet we can look to maintain outperformance.”
On U&C’s continuing success
“Grey hair has taught us that in order to realise value through economic cycles, one must possess an extremely large balance sheet or concentrate on projects with a low peak capital requirement, as compared with eventual build-out realisations.
“Peak capital requirements on projects are the equivalent of fixed operating costs for a business. Cost thresholds on most of the large London projects are very much higher than on Urban&Civic projects.
“Both cause and effect is that our peak capital requirements are demonstrably lower. Revenues from house sales are typically also less variable than for apartments. Bluntly put, the assets held by Urban&Civic are appreciably more defensive, even without the now contracted minimum annual payments from housebuilders described below.”
On the failings of the house builder model
“The UK housebuilders have adjusted their model astonishingly quickly to concentrate on high margin, almost build-to-order, rapid capital circulation and high dividend pay out. Help to Buy equity support has meant that a new small house has become the default purchase for first time buyers outside London.
“In concentrating upon their absolute strengths in construction and marketing, the major housebuilders give up a proportion of the value chain. This leaves a clear space for Urban&Civic.”
On strategic land and U&R creating a new asset class
“The cashflow capacity of our large-scale assets and the security of that cash flow are becoming increasingly de-risked. It is perfectly evident that the provision of fully serviced plots within high-quality environments is attractive to a broad range of housebuilders, including the quoted majors.
“Incremental funding infrastructure spend, assisted by long term debt from the HCA, to accelerate the availability of additional non-competing plot parcels has already commenced at Rugby and soon will at Alconbury. The size of the sites means that the opening up of new points of sale is entirely feasible.
“To appraise how those likely cash flows translate into an open market value of our strategic sites is not without its challenges. It may be that the scale of what is now beginning to be delivered could result in the ultimate creation of a new property asset class, much as has taken place over the past 20 years with student housing.”
On government money
“Net Group gearing is below 10% and the majority of borrowings going forward are likely to be 10-year facilities from the Homes and Communities Agency that are designed to encourage accelerated investment. Interest is not payable until proceeds from sales are received.”
“A new £45m 10-year facility from the Homes and Communities Agency is in the process of being documented with respect to Alconbury… Urban&Civic will continue to operate with low levels of bank gearing, with the UK government lending the bulk of the debt for the foreseeable future.”
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