St. Modwen adjourns AGM and divi decision as it tightens belt for Covid

St. Modwen Properties announced the adjournment of its annual general meeting, and the 5.1p per share final dividend, as a result of the ongoing Covid-19 coronavirus pandemic on Wednesday.

The FTSE 250 company had been scheduled to hold the meeting in Birmingham on 27 March.

It said in its update that, following the “significant strategic repositioning” of its business since mid-2017, its financial position was “strong”.

In line with its expectations, see-through net borrowings had increased to £346m as of this week from £291m at the end of November, due to 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 valuations, that implies its see-through loan-to-value ratio currently stood at a “modest” 22.8%, compared to 19.6% in November.

“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,” the board said in its statement.

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

As a precautionary approach to future planning, St. Modwen said it had also stress-tested its interest cover covenants for a scenario of a “severe and prolonged” downturn.

It said it believed the areas of income which were most at risk in such a scenario were 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 above mentioned cash held on deposit in our NCGM joint venture, and we have no debt maturities until December 2023, aside from a small joint venture facility, of which [our share of] £2m is drawn.”

St. Modwen said that, building on the “growing momentum” across its three business units in 2019, it had seen a positive start to 2020.

However, the “unprecedented” recent events related to Covid-19 had started to cause significant disruption to the global and UK economy, with the board saying the duration and magnitude of that, and thus the impact on its financial results, were “impossible” to predict at present.

The company’s current focus was on making sure its employees and customers were safe, its balance sheet remained strong and its liquidity remained 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 its industrial and logistics operations, leasing momentum had remained strong since the firm announced its 2019 results in February, with the board saying it had seen “continued positive progress” against all key indicators.

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

In order to preserve its strong financial position, St. Modwen said it had decided to pause any new development commitments for the moment, including two projects in its committed pipeline where it had yet to start on site.

As a result, the firm now expected to complete 1.2 million square feet of new space in 2020, instead of between 1-5 million and 1.7 million, and retain 1.1 million square feet.

“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 also described as “strong” following the 2019 results, such that by mid-March year-to-date unit sales were ahead of expectations.

However, in the last few days the company said it had seen a “marked slowdown” in both footfall and net reservations, adding that it expected that to persist until measures around social distancing were lifted and customers were confident in their job security.

“In order to protect the health and safety of our employees and customers, we have taken the decision to temporarily close all our sales offices and construction sites, save for some works today to make sure the sites are safe and secure.”

In strategic land and regeneration, the company said it had paused all uncommitted capital expenditure, in line with the rest of the business, and was focused on working in partnership with 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, the assets generated net rent and other income of £9m last year, which the firm said it expected to be “meaningfully negatively impacted” for as long as current conditions persisted.

“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.”

At 0949 GMT, shares in St. Modwen Properties were up 2.39% at 329.71p.