- Barratt Developments and MJ Gleeson offload properties
- Both deals worth tens of millions of pounds
- Sales should support earnings in difficult year
In what looks like a shrewd business move, two UK housebuilders announced they had signed multi-million-pound deals to sell large portfolios of homes to institutional investors, sending their shares higher.
Barratt Developments (BDEV) shares gained 1% to 417p, while MJ Gleeson (GLE) shares gained 2.5% to 367p, outperforming their respective benchmarks.
WHAT ARE PORTFOLIO SALES?
Both developers have agreed to sell several hundred homes across multiple sites to big private investment companies.
Barratt Developments is selling 604 homes to Citra Living Properties, a wholly-owned subsidiary of Lloyds Banking Group (LLOY), for a total of £168.4 million.
More than 500 of the homes will be completed and transferred to Citra within the next 12 months, with the balance scheduled for delivery between June 2024 and June 2025.
Citra Living was set up by Lloyds in 2021 as a professional landlord and property management company, and has worked with Barratt in the past.
‘We are delighted to announce a significant step forward in our partnership with Citra, who share our commitment to delivering a wide range of high-quality, sustainable homes and communities across the UK’, said Barratt chief executive David Thomas.
‘The single-family dwelling segment of the private rental sector continues to grow strongly and presents an opportunity for us to both diversify our revenues against the current challenging market backdrop and develop communities which encompass all forms of housing tenure.’
The current gross asset value of the 604 homes, including the current value of the land on the balance sheet and work in progress, is £72.4 million as some of the units are only part-completed and many have yet to be constructed.
Meanwhile, MJ Gleeson announced it was selling a portfolio of 288 homes to a consortium of investment firm Carlyle (CG:NASDAQ) and Gatehouse Investment Management for a total of £50.4 million.
Up to 66 of the properties have already been completed, with the balance due to be finished and handed over by June 2024.
Chief executive Graham Prothero called the deal ‘a compelling opportunity in the context of the current uncertain market environment’.
WHY ARE BOTH FIRMS DOING DEALS?
By selling off developments in big chunks, the house builders are able to ensure their sites stay busy despite the fall in demand for new-build houses from private buyers.
In its last trading update in May, Barratt revealed net private reservations from the start of January to 23 April were down 30% compared with the same period last year.
Moreover, while it said it was fully forward sold for this year, sales were valued at £2.95 billion compared with £4.5 billion in the first four months of 2022, a drop of more than 30%.
In its first-half trading update, MJ Gleeson said net private reservations in the four weeks to 10 February were down 45% on the same period last year.
The firm is due to update the market on its full-year trading early next month.
