UK BtR Investment Interview with Rob Sumner

Q: Given then events of the past 24 months (i.e. the Covid pandemic), what have been the biggest lessons you’ve learnt both as an individual and with regards to your company?

Rob: I think what has been most remarkable for me has been the resilience not only of the sector but more so our customers during the pandemic.

It’s clear that the roof over your head becomes the priority above almost all else, exemplified by our rent collection data over the period which was basically 100%.

On a lessons learned basis, we expanded our communication with our customers significantly over this period, providing help and reassurance at a time when there was plenty of fear in the system and whilst our communications pre-Covid were very good, we’ll keep them at post-Covid levels going forward.

Q: What is your process for finding and buying land to deliver your pipeline? Specifically, when competing with the bid’s housebuilders can offer as the for-sale market continues to thrive?

Rob: The land market is competitive and whilst the sales market continues to enjoy its bull run, we see little chance of that changing.

Whilst we invariably do compete for some parcels of land, we very much see ourselves as complementary to the process and the catalyst for unlocking largest parcels of land, providing a variance to the mono or bi-tenure of open market and affordable.

Q: What would be your sweet spot scheme be in terms of size and location, if you had one?

Rob: To look at assets on the psf basis is too simplistic, there are multiple elements which conflate to make the appraisal work, so we have a significant range of open market and rental values across our portfolios.

Site size in the early days for us was ideal at 80 or so homes, but now we are happier and confident with significantly larger tranches, on the proviso that the location can absorb the stock and employ its occupants.

The land market is competitive and whilst the sales market continues to enjoy its bull run, we see little chance of that changing.

Q: What is your funding and development model for BtR?

Rob: Forward funding.

Q: Developments face different viability challenges due to the ever-increasing high construction costs. How does that shape the kind of schemes you will deliver? (Such as size /amenity /unit numbers)?

Rob: Currently it doesn’t. We use a standardised portfolio of house types which we match to the location and local demand characteristics.

Ultimately increased built costs can have impacts on viability but in due course should really impact the residualised value of the land.

Q: In addition to the above, how specifically do you safeguard against the unpredictability of the construction cost market we’re witnessing and heading into as we navigate the bounce back of covid and uncertainty of Brexit?

Rob: We have partnerships and we provide certainty to our partners over the long term which gives them some ability to forward purchase.

We use MMC, which is more of a manufacturing process than pure construction, allowing for some costs to be fixed and finally we use fixed price design and build contracts which provide cost price inflation insulation once a project has commenced.

Q: With Cop26 still in everyone’s mind – how do you see the priorities of the investment strategy changing over the next 18 months as the world moves to make better choices for the longevity of our planet?

Rob: ESG is increasingly woven into our investment decision making process. The listed markets are now very sceptical about deploying equity into any vehicles which do not demonstrate at least some elements of a positive approach to the environment, societal matters and indeed the structure and transparency of the way a business functions.

We have worked very hard to provide our residents with positive places to live which enhance their quality of life not only through the building fabric, but through the quality of the development, the way it is managed, and the thought given to its placement.

Q: What are your priorities for the next twelve months?

Rob: Deployment of equity and making sure the income flow is maintained.

Q: What impending trend do you perceive will change the way you and the industry as a whole invests and develops new schemes?

Rob: The key will be the maturation of the sector and the consequent effect of yields coming in, which will make the sector more competitive, accelerate opportunity and therefore delivery.

Q: Any closing thoughts or opinions you would like to share with regards to the industry?

Rob: I think the industry has come a long way over the last 10 years and we are still on the journey.

I would hope that as the industry grows, we are allowed to self regulate and there aren’t too many controls placed upon the sector which may make it a less attractive home for global equity and may arrest the sector’s growth which will only, ultimately affect those who are looking for a good quality home in which to live with the option of being there for as long as they wish.

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