Image: Istock
Tenanted stock acquisition
How the market for stock acquisitions and disposals is shifting and what the future might hold
GROWTH, REGENERATION & DEVELOPMENT
Glenn Allum
Senior Consultant, Campbell Tickell
Ben Williams
Project Consultant, Campbell Tickell
Issue 73 | September 2024
Trading of tenanted portfolios is a well-established market. The number and scale of portfolios has continued to increase as the market has matured over recent years. It shows no signs of slowing down, particularly as disposals are increasingly seen as a means of generating capital receipts for investment in existing assets, alongside more traditional rationales for disposal programmes. New market entrants add further momentum.
“Continuing operational environment challenges, funding investment in existing stock and the greater costs of funding has translated into fewer bidders.”
Fewer bidders
While supply into the market remains buoyant, there are fewer buyers. Continuing operational environment challenges, funding investment in existing stock and the greater costs of funding has translated into fewer bidders or interested parties where portfolios have been offered.
As a natural consequence, the competitive tension which has maintained strong values has been less evident. Although registered providers (RPs) can still expect to achieve reasonable price expectations, fewer bidders inevitably results in pricing becoming less universally aggressive.
At the same time, some transactions have failed to achieve legal completion. While this remains the exception, several factors have contributed to this increase, including the challenges of securing affordable funding and more intensive and rigorous due diligence on asset condition.
Sellers are increasingly viewing evidence of secured funding and a demonstrable track record of delivering transactions as an advantage when engaging in bilateral negotiations or in the selection of a preferred partner.
So where does that leave the market?
- The ‘push’ factors for stock disposal remain strong, fuelling disposals as a cornerstone of growth strategies. Some larger RPs continue to transact significant volumes of stock as they seek to rebalance their existing businesses.
- The size of portfolios are likely to increase as larger providers review their geography. This will be partly driven by more robust consumer regulations and with that, a requirement to demonstrate connection and visibility at the local level.
- For-profit RPs are likely to secure a greater proportion of disposal activity. Their interest has expanded from new developed homes to existing stock. Those interested have ambitious growth plans and substantial funds. L&G’s recent announcement that it will consider the acquisition of any type of social housing from traditional providers gives a sense of intent. Some for-profits will also sell into the market to achieve shorter term business objectives (for example, realising returns after, say, five years).
- Care and support portfolios remain difficult to dispose. Individual or smaller portfolios aimed at specific client groups are most likely to be sold to specialist providers while price expectations remain modest.
- Speed of delivery. For those transactions where a price is agreed, parties are looking to achieve exchange and completion faster, with an imperative to transact typically driven by financial year end. This means resources need to be focused and sufficient to meet those expectations.
- Regional variations in appetite and value continue to frame the market. For example, stock in London, with all its inherent management and investment issues, appears to be harder to transact.
New government
We do, of course, have a new government with laudable ambitions to boost supply. It remains to be seen whether, and to what extent, emerging policy will impact on the stock rationalisation market.
It may also rekindle local authority stock transfer. If local authorities are identified as substantial providers of new homes and consumer regulation exposes performance shortcomings, problematic existing assets could become a catalyst for cross-subsidy. This would, however, rely on a solution being found to historic debt challenges.
“It remains to be seen whether, and to what extent, emerging policy will impact on the stock rationalisation market.”
