Developer says it has financial muscle to see it through pandemic

Developer St Modwen said today it will adjourn its annual general meeting and payment of its final dividend.

The meeting was due to be held on Friday, March 27, in Birmingham.

The group, which has a range of schemes throughout the North West and a regional office in Warrington, said payment of the dividend will be adjourned, accordingly, until approved by shareholders at a reconvened AGM.

In a trading update it said that, following the significant strategic repositioning of the business since mid-2017, its financial position is strong.

In line with expectations, see-through net borrowings have increased from £291m at the end of November 2019 to £346m as of this week due to the investments in its pipeline, including £37.5m of cash held on deposit in its NCGM joint venture.

On a pro-forma basis, based on November 2019 valuations, this implies the see-through loan to value currently stands at a modest 22.8% (Nov 2019: 19.6%).

It said: “The short-cycle nature of our developments allows us to dial down activity quickly in the current environment, so our residual committed expenditure is to a meaningful extent covered by contracted cash receipts from disposals.

“Stress-testing our assumptions, we estimate our portfolio could currently withstand a c. 40% fall in value before we reach our closest LTV covenant, prior to any potential mitigating actions, such as disposals.”

It added: “As a precautionary approach to future planning, we have also stress-tested our interest cover covenants for a scenario of a severe and prolonged downturn.

“We believe the areas of income which are most at risk in such a scenario are housebuilding profits and retail rents.

“Whilst this is not a forecast, in a stress-test scenario including a very significant fall in housing sales for the remainder of the year and a substantial and sustained fall in retail rental income, we believe that with a number of already identified mitigating measures we would have enough headroom before our interest cover covenants are threatened for the next 12 months.

“Meanwhile, our liquidity position is strong. On a see-through basis, we currently have £169m cash available following the drawdown of our facilities, excluding the abovementioned cash held on deposit in our NCGM JV, and we have no debt maturities until December 2023, aside from a small JV facility, of which £2m is drawn (our share).”

Referring to current trading, building on the growing momentum across its three business units in 2019, St Modwen had a positive start to 2020.

“However, the unprecedented recent events related to COVID-19 have started to cause significant disruption to the global and UK economy.

“The duration and magnitude of this disruption and hence the impact on our financial results are impossible to predict at present, so our current focus is on making sure our employees and customers are safe, our balance sheet remains strong and our liquidity remains high.

“Our strategic repositioning since mid-2017, which resulted in the disposal of the vast majority of our non-core retail assets and London residential land and a substantial reduction in our borrowings, means the business is robust.

“Moreover, the long-term drivers for our key sectors, industrial/logistics and residential, which make up nearly 90% of our assets, remain positive, so we are confident that St Modwen is well positioned for the future.”

In industrial and logistics leasing momentum has remained strong since the group announced its FY19 results in February and it has seen continued positive progress against all key indicators.

Occupier interest has remained generally strong in recent weeks as well, although the group anticipates some inevitable delay in both development activity and leasing as a result of the restrictive measures in place.

“In order to preserve our strong financial position, we have, therefore, taken the decision to pause any new development commitments for the moment, including two projects in our committed pipeline where we had yet to start on site.

“Consequently, we now expect to complete 1.2m sq ft of new space in 2020, instead of 1-5-1.7m sq ft, and retain 1.1m sq ft.

“Our decision to pause new projects means residual committed capex on our pipeline is modest, at £49m, whilst the healthy 7.6% yield on cost provides substantial headroom to absorb any softening in market conditions.”

In St Modwen Homes, trading was strong following the FY19 results, such that by mid-March year-to-date unit sales were ahead of expectations.

However, in the past few days the group has seen a marked slowdown in both footfall and net reservations and anticipates this to persist until measures around social distancing are lifted and customers are confident in their job security.

In order to protect the health and safety of employees and customers, the group has temporarily closed all sales offices and construction sites, save for some works today to make sure the sites are safe and secure.

In strategic land and regeneration St Modwen has paused all uncommitted capex, in line with the rest of the business, and is focused on working closely in partnership with its tenants across its residual non-core retail assets and at its two retail-led regeneration projects, Trentham Gardens and Wythenshawe, to help support their businesses.

Combined, these assets generated net rent and other income of £9m last year, which the group expects to be meaningfully negatively impacted for as long as current conditions persist.

The group said: “Our priority at this difficult time remains the health, safety and well-being of our staff, customers and partners, while also seeking to ensure that our business emerges from the COVID-19 crisis in as strong a condition as possible.

“We, therefore, welcome the scale and speed of the Government’s actions to support the economy and are committed to playing our part in tackling both the societal and economic challenges presented by the COVID-19 crisis.”