Ambitions To Become A Pan-European Developer And 6 Other Facts About CBRE’s £267M Purchase Of Telford Homes
The full details of one of the most eye-catching deals of the year — CBRE’s £267M purchase of publicly listed house builder Telford Homes — have now been published.
Here are some of the key details of the deal contained in the 80-page offer document.
First Things First, What Is Telford Homes?
Telford is a listed house builder, which in the year to 31 March made a pre-tax profit of £40M from revenue of £354M. It has shifted in recent years from building homes for sale to build to rent, and intends to become a BTR specialist. In the past year £232M of its revenue came from build-for-sale homes and £109M from build-to-rent homes.
What Does Its Development Pipeline Look Like?
It has a pipeline of 4,900 build-for-sale homes with a potential end value of £1.6B, and a pipeline of 1,422 BTR units which it does not put a value on.
Why Is CBRE Buying It?
That shift to BTR is the big draw for CBRE.
“The UK market is in the early stages of what CBRE believes will be a compelling secular shift toward multi-family for-rent housing, similar to how the U.S. market has evolved,” CBRE said in its offer document.
It wants to capitalise on that shift, so is buying a development business that is building homes on behalf of big investors like M&G and Invesco.
Why Is Telford Selling?
The offer document gives an insight into why Telford has accepted an offer for its business. In the long term it thinks that building homes for rent is a better use of its capital than building homes for sale. But in the short and medium term this creates an issue: BTR is less profitable, Wiseman said in a letter to shareholders contained in the offer document. The margin on its BTR homes was 13%, compared to 28% for its build for sale homes, it said in its annual report. And the investors for whom it is building rental homes want it to take a long-term equity stake in the developments it builds as well as undertaking a greater role in the management. The co-investment in particular would require a capital commitment it does not have the balance sheet to provide.
CBRE’s Grand Ambitions
The offer document shows how CBRE has bigger ambitions for this acquisition than just UK BTR. Telford Homes will be a stand-alone division of Trammell Crow, CBRE’s development management business.
“Telford Homes can serve as a springboard potentially to move Trammell Crow into other products types in the UK and development opportunities in continental Europe and the acquisition of Telford Homes will afford Trammell Crow the opportunity to expand its development platform over time in the UK and the rest of Europe,” CBRE said in the offer document.
Founder And Chief Executive To Cash In
Telford Homes’ chairman and founder, Andrew Wiseman, and chief executive Jon Di-Stefano are set to receive a windfall from the deal. The 350p a share being paid by CBRE will net Wiseman about £7.7M for his shares in the company and Di-Stefano will net about £1.45M.
Current Management To Stay In Place
The Telford Homes top team is going to stay and continue to manage the business going forward. CBRE said there would be limited job losses (mainly on the administrative side) as a result of the acquisition. It said that no agreement had yet been reached with Telford’s management about pay. Di-Stefano’s total pay in 2019 was £585,224, according to the company’s annual report.