SMP.L Regulatory News (SMP)

Date of issue: 24 June 2020

LEI: 213800WMV4WVES8TQH05

This announcement contains inside information

ST. MODWEN PROPERTIES PLC

("St. Modwen" or "the Company")

Trading update for the period ended 31 May 2020

Rob Hudson, Interim Chief Executive, commented:

"Our focus since the start of the COVID-19 crisis has been on protecting the health and safety of our people and customers, and preserving our strong balance sheet. We are pleased to have been able to restart activity on our sites safely and strengthen our liquidity and financial position, but the current economic disruption will inevitably have an impact on our financial results in the short term, as the pandemic continues to cause significant social and economic challenges. Whilst near-term visibility remains low, recent trading has been ahead of our expectations and the long term structural growth drivers in our two key markets, residential and industrial/logistics, remain positive, so our strong financial base leaves us well positioned for the future.

Update on current trading

As we set out in our trading update on 25 March, we had a positive start to 2020, building on the growing momentum achieved during 2019. Since then, that momentum has unsurprisingly been affected by the COVID-19 crisis, although the impact to date has been less than we had assumed in our initial stress-testing.

In Industrial & Logistics, occupier interest has remained resilient and even though we have seen, as expected, some delays in construction and leasing, we have made good progress in leasing up our recent and committed developments. As a result, our 2019 completions are now 74% let or under offer (Feb 2020: 58%) and our 2020 pipeline is 53% let or under offer (Feb 2020: 18%), with around half of these new letting deals agreed during lockdown. We temporarily paused any new development commitments in March but our substantial c. 18m sq ft future pipeline and high c. 8% yield on cost provide us with significant optionality, so given the continued good occupier interest, we anticipate starting further schemes in the near future. In our existing portfolio, we have so far received 94% of the £5.4m rent due in March, April and May. We have agreed to waive 1% of the rent and are working closely with our customers on reaching a solution for the remainder.

In St. Modwen Homes, sales were tracking ahead of plan before we decided to close our sites on 24 March. In line with Government guidelines, we restarted work on our sites in the middle of May and sales centres at our 22 sales-active sites have since reopened, but the delay in production means that our 280 completed unit sales for the half year were down 32% vs last year (H1 2019: 411 units). As operating costs are spread over this smaller number of sales, our half-year operating margin will be down by a broadly similar amount. However, customer demand so far has remained resilient, with overall private sales for the year to date, including units which are exchanged and reserved, down less than 5% vs this time last year. This means our private forward order book is up 27% compared to this time last year, with average sales prices generally holding up. Since the end of March, our average sales rate has been 0.7 per week (net of cancellations) and since site reopening our sales rate has been well ahead of this, although we are mindful this could slow later in the year as pent-up demand is satisfied.

In Strategic Land & Regeneration, our residual non-core retail and two retail regeneration assets have, as expected, been significantly impacted by the mandatory closing of non-essential shops. To date, we have received 61% of the £4.0m rent due in March, April and May, taking the overall rent received for the Group over that period to 80%. We have agreed to move to monthly payments on 1% of SL&R rent, waive 6%, defer 10% and continue to work closely with our customers with regard to the remaining element. We continue to focus on recycling capital and, despite the inevitable delays to some disposals during lockdown, we have agreed to sell £12m of non-core assets and £30m of surplus residential land since the start of the year.

Decisive action to preserve balance sheet strength, liquidity and covenants

Our balance sheet and liquidity remain strong. Our decision to pause any uncommitted capex and exercise tight control of costs means that since our trading update on 25 March, see-through net borrowings increased by only £14m to the end of May to £360m, including our £35m share of the cash held on deposit in our NCGM JV. This means our portfolio could withstand a c. 40% fall in value from November 2019 levels before we reach our closest LTV covenant. On a see-through basis, we had £157m of cash available at the end of May, excluding the 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).

We have received confirmation that we are eligible in principle to access funding under the Government's Covid Corporate Financing Facility ("CCFF"), should that be required, which provides assurance in the event of a severe deterioration in market conditions. The facility is currently being documented. We have also agreed an amendment of the interest cover covenants on our Group debt facilities. This has no impact on our interest cost but means that our interest cover could now withstand a downside scenario of a very material fall in housing sales volumes and prices and a loss of the majority of retail rent until the end of 2021.

Responding to the current climate

Overall, our significant portfolio repositioning over the past three years means that nearly 90% of our portfolio is focused on residential and industrial/logistics; both sectors where long-term structural growth drivers remain positive. Still, we are mindful that the significant economic and social challenges resulting from COVID-19 could affect consumer and business confidence for some time to come. The disruption from the COVID-19 crisis will lead to a reduction in housebuilding profits and retail rent in the first half of 2020, which is expected to reduce adjusted EPRA earnings to c. £4-5m (H1 2019: £16.2m). We also anticipate a reduction in the valuation of our residual retail assets and surplus residential land, as our focus remains on recycling capital into the higher returning parts of our business, principally our substantial Industrial & Logistics pipeline. Albeit not fully insulated, half-year valuations in this part of the business are expected to be more resilient.

Despite this impact on our financial results in the six months to May, our recent operational performance has been encouraging, particularly in terms of housing sales and industrial/logistics leasing. This is underpinned by our rapid response to the crisis, as we are adapting our ways of working to capture potential opportunities where possible. At the same time, we have taken a number of steps to manage our cost base, including the 20% voluntary reduction in Board pay and fees previously announced, a reduction in all discretionary spend and bonuses, a temporary tapered reduction in pay for higher earners, and selective redundancies. Combined, these measures are expected to result in cost savings this year equal to c. 15% of last year's business unit operating and central administrative expenses.

We are acutely aware of the social challenges the crisis brings for many. As part of our COVID-19 response, we have made donations to local causes in the heart of the communities that we serve and we are working with local organisations, from foodbanks to volunteering groups, where we can make a meaningful difference, with a combined £150,000 of funding initially pledged. We also offer a discount for key workers when buying a new home from us. Whilst most of our on-site activity had been paused during lockdown, we have continued to pay any employees on furlough their full entitled salaries and decided it would not be appropriate to use the Government's Coronavirus Job Retention Scheme ("CJRS"). We are encouraged by, and proud of, the strong dedication and commitment that our people have displayed throughout this period of uncertainty, which further underpins our solid base for future growth.

Half year results

The Company intends to announce its results for the half year on 22 July 2020.

- ENDS -

This announcement contains certain forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "expects", "intends", "plans", "goal", "target", "aim", "may", "will", "would", "could" or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. Forward-looking statements by their nature, involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward-looking statements. Any forward-looking statements made by or on behalf of the Company are made in good faith based on the information available at the time the statement is made; no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. The Company does not undertake to update forward looking statements to reflect any changes in its expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. Nothing in this announcement should be construed as a profit forecast.

The person responsible for arranging the release of this information on behalf of the Company is Rob Hudson, Interim Chief Executive.