20 April 2009
Telford Homes Plc (AIM:TEF), the residential property developer in East London noted for regeneration projects within public sector partnerships, is pleased to give the following trading update ahead of its preliminary statement of results for the year ended 31 March 2009 which will be released on 27 May 2009.
- £57 million grant programme agreed with the Homes and Communities Agency ("HCA") across seven developments.
- Several developments being constructed as 100% affordable homes for housing association partners resulting in secure cash inflows.
- Negotiations concluded to renew or extend all required bank facilities with amended covenants where necessary. Formal documentation will be completed over the next two to three weeks.
- Open market completions continue at a steady rate, although there are ongoing delays and the Company will experience some contract failures.
- Contingency plans in place to reduce the cash impact of failed completions.
Current market conditions
During the year to 31 March 2009, the ongoing difficult market conditions have continued to impact on the availability and cost of mortgage finance and this is affecting the rate of new sales and success in achieving legal completions on open market homes. However, the Company has taken a number of steps to de-risk future developments through partnerships with housing associations and the HCA. Furthermore the Company has maintained its prudent approach to investment in land during the period, as part of its ongoing efforts to protect cash flow. Accordingly Telford Homes has only invested in land which results in cash neutral and risk free development such as the construction of affordable housing.
Affordable housing and HCA grants
The Board has worked to position Telford Homes for the economic downturn and has taken steps to reduce the impact of this downturn on the business. The Company has agreed a grant programme with the HCA that is expected to deliver £57 million across four sites owned by Telford Homes and three estate regeneration projects in partnership with Eastend Homes. In total the grants will part finance over 400 affordable homes across these developments over the next three years.
In parallel to the grant programme the Company has advanced discussions with its housing association partners to construct some developments entirely for affordable housing. Although at a lower margin, this gives the Company the ability to commence construction on these sites with secured cash inflows over the course of the development and makes this change in strategy very attractive in the current market. The Company has recently entered into a contract with Family Mosaic to deliver 63 affordable homes across two sites in Queens Road, Southwark and expects to enter into a contract shortly with Gallions Housing Association to deliver 53 affordable homes in St Anne's Row, E14.
In the results for the year to 31 March 2009 the Board expects to write down the value of land and work in progress on a restricted number of developments due to the continued decline in property values. However write downs will not be necessary on sites where the Company expects to construct 100% affordable housing at a positive margin as this supports existing asset values.
The Board is delighted to report that negotiations have been concluded with all three of the Company's banks to renew loans, extend terms and set appropriate covenants where required. Formal documentation of these agreements is expected to be put in place over the next two to three weeks. The Company has secured competitive interest rates given the current climate and this, together with the positive feedback received during the review process, reflects the strong relationships held with each bank.
The number of open market completions for the 12 months to 31 March 2009 has continued at a steady rate and totalled 350, an increase over the 311 achieved last year. The Company has just under 400 pre-sold open market homes that are due to complete over the next 12 months and remains committed to working with each purchaser to achieve as many successful completions as possible.
Given prevailing market conditions the Board has prepared for a number of these pre-sold contracts to fail to complete, which will result in Telford Homes retaining the 10% deposit already received and having the option to take legal action against the buyer. There have been just three contracts rescinded in the last six months but the total number of failures is ultimately expected to be much greater and is forecast to reach between 60 and 80 while mortgage finance remains so heavily restricted. The Company has contingency plans in place to deal with these failed contracts which will mitigate the impact on the Company's cash flow. The Company is well advanced with negotiations to secure longer term funding for those properties that fail to complete and with this funding in place the business could withstand significantly more failures than are currently forecast.
The Company's geographic focus remains beneficial with the ongoing regeneration of East London and partnerships with housing associations continuing to underpin many of Telford Homes' developments. The £57 million grant programme agreed with the Homes and Communities Agency will ensure that construction can continue on as many of the Company's developments as possible.
Andrew Wiseman, Chief Executive of Telford Homes, commented: "The strong partnerships which the Company has with a number of housing associations and the grant programme agreed with the HCA mean that, to a certain degree, we are able to shelter the Company from the lack of activity and confidence in the private residential market. The Board will focus on these relationships to achieve security of cash inflows before embarking on construction and will continue to ensure that the Company is adapting to current economic conditions."
For further information:
|Telford Homes Plc|
|Andrew Wiseman, Chief Executive||Tel: +44 (0) 1992 809 800|
|Jon Di-Stefano, Financial Director|
|Pascal Keane||Tel: +44 (0) 020 7408 4090|
|Chris Lane / Henry Harrison-Topham||Tel: +44 (0) 20 7398 7708|