Telford Homes (AIM: TEF) has released another set of reassuring results. There’s been a lot of concern expressed about the outlook for the London residential property market, especially at the premium end. However Telford focuses on non-prime locations with good transport links and an average selling price in the £500,000 bracket.
Demand here remains strong. For example its City North development in Finsbury Park has just launched, with 72 units sold off plan at the top end of the price range. There’s been no discounting and the total forward sold position exceeds £700 million.
About 80 per cent of apartments are sold to investors, with around two thirds of these being based overseas. There’s been no change to the outlook post-referendum, though management did pause in making further land purchases until it felt the market had settled down again. There’s already a strong pipeline in any case, containing £1.4 billion of future revenue.
The company is increasingly interested in ‘build-to-rent’. These are apartment blocks designed for the rental sector and pre-sold to a single investor. There’s increasing amounts of institutional money being allocated to this category as a new asset class within property investment. It allows Telford to progress with projects on a de-risked basis by locking in its profit margin early on. Two out of fifteen current schemes are buy-to-rent; but CEO Jon Di-Stefano thinks this single investor presale approach could grow to become half the business.
The high forward sales backed by deposits and increasing buy-to-rent content, mean that visibility is good in a notoriously cyclical sector. Underlying supply/demand imbalances at this end of the London market also support the fundamentals. The stock trades close to its NAV and offers an attractive 5 per cent yield.