St Modwen makes ‘strong progress’ but reveals legacy project issues

St Modwen said this morning it expects to have to recognise a provision for a potential claim against the company for a legacy project the group developed and sold around 15 years ago as an exceptional item in its 2019 results.

The company said that while the underlying performance of the business is in line with expectations, the claim is expected to reduce its NAV for 2019 by around 8 pence per share.

St Modwen said it is confident this is a “one-off historical issue” which is not expected to have any impact on its strategy or medium-term return expectations.

St Modwen said: “To date, no detailed claim has been made by any of the parties involved and as such there is no certainty around the potential amount and timing of any future cash outflow. We anticipate we will be able to recover a meaningful part of any potential claim but as IFRS places a lower threshold on the recognition of potential future obligations than the recognition of potential future reimbursements, we cannot recognise any anticipated recoveries at this stage and will therefore only recognise the provision element in our 2019 results.”

Meanwhile, St Modwen has said it has made strong progress in delivering a “deep pipeline” of opportunities in its portfolio following a major repositioning of the business.

In a trading update for the period ended November 30, the company said that while the external environment remains uncertain and the prospects for parts of the UK property market continue to be challenging, the outlook for its two key sectors, industrial/logistics and regional housebuilding, remains underpinned by “structural growth characteristics.”.

It said St Modwen Homes surpassed 1,000 homes in the year and is on track to deliver further growth and its forward order book is up 33% compared to this time last year.

St Modwen said its substantial industrial and logistics pipeline continues to drive strong growth, with its committed pipeline standing at 1.6m sq ft, up from 1.5m sq ft this time last year.

It completed 0.9m sq ft of space during the year (2018: 0.9m sq ft), of which it plans to retain 99% (2018: 69%), with a further 0.5m sq ft of completions due early in the new year.

In strategic land and regeneration, St Modwen said it has seen continued progress against the key objectives and agreed the disposal of £30m of residential land during the period (2018: £53m).

The group also sold £65m of non-core assets during the period, slightly ahead of the target it set at the start of the year, including the sale of just over half of our residual non-core retail assets for £34m announced last week. In addition, it sold a range of other non-core assets for £31m in total, on average slightly above book value. Combined with the disposal of £177m of retail assets at a less than 1% discount to book value during 2018, non-core retail has reduced to only 2% of its portfolio by value, down from 16% two years ago.

“We continue to focus on the delivery of the substantial opportunities at our existing regeneration projects. At Swansea Bay Campus we completed the latest phase of 411 student beds which we sold for £38m, as announced earlier this week, releasing capital for future phases of development at this successful scheme. At Longbridge, momentum has continued to pick up and we anticipate a further increase in development activity during 2020, whilst we have continued to actively progress other longer-term mixed-use opportunities in our pipeline,” the company said.

Mark Allan, chief executive of St Modwen, said: “Following the major repositioning of our business through the successful disposal of over 40% of our assets in the preceding 18 months, our focus in 2019 has been firmly on delivering the deep pipeline of opportunities in our existing portfolio. We have made strong progress on this during the year in each of our three business units and, supported by our solid capital base, we are confident that the continued delivery on this strategy will drive a meaningful improvement in return on capital and earnings over time.”

The company intends to announce its results for the full year on 4 February.