And also, if L & G wish greater exposure to the residential property market, they should do so via a fund set up for the purpose, not with their shareholders funds. We wouldn't expect our REITS investments to be offering financial services on the side.
So presumably the flip side of "affordable rent" is; if you can afford the rent you can get a 20% discount. If you can't afford it, then you are eligible for housing association rent, which is less, and if you are the working poor and least able to afford it, you pay a premium and can be slung out on a whim.
Never rented, and the above observation does not reflect my politics, simply an observation on the google.
Most of our new homes are let on an Affordable Rent. This is a different way of renting housing association homes, introduced by the government in 2011.
An Affordable Rent is set at up to 80% of the market rent (i.e. the average rent for local private lettings) inclusive of any service charges, so it costs less than renting privately but is generally more than other types of housing association rent. The tenancy will also be for a fixed term of five years (or for 10 years for new tenancies from April 2018)."
Even if the diversification into housing flops financially(unlikely)-
at least it will have made a meaningful social contribution.
It displays innovative thinking by senior management and there is no reason
why a company with long term pension commitments should not be able to partially match these with a stream of future rental income.
The UK insurer Legal & General is launching an affordable housing business with the aim of providing 3,000 new homes a year within four years.
L&G said it was in the process of recruiting a management team to run the new division, which is expected to build and buy homes to address a chronic shortfall of affordable housing.
Affordable housing is a classic example of underinvestment with minimal new equity capital being deployed to the sector, the L&G chief executive, Nigel Wilson, said.
Renting property: how does it compare around the world?
This is not a sustainable position either for the sector or for the 1.3m households currently on a waiting list.
The affordable homes business marks L&Gs latest move into the UK housing market, where it is becoming a significant player. The insurer is already investing about £1.5bn in the build-to-rent sector, with sites in Bristol, Edinburgh, Salford, Bath, Brighton, Leeds and Walthamstow.
It aims to have 6,000 build-to-rent homes in planning, development or operation by the end of 2019.
L&G has also promised to revolutionise the housebuilding industry by constructing thousands of prefab homes from its new modular housing factory in Leeds. The homes are made and fitted out in the factory before being transported to their destinations on the back of trucks.
The new affordable-homes business will become a subsidiary of Legal & General Capital (LGC), which focuses on areas where there has been a lack of investment and innovation.
L&G said it would offer a more sustainable approach to providing affordable homes after housing associations have taken on a lot of debt over the years to fund developments.
Theresa May has described the national housing crisis as one of the biggest barriers to social mobility in Britain, with 300,000 new homes a year needed to address the shortage. She has argued that key workers such as nurses, teachers and firefighters should be the priority for affordable homes.
A shortage of homes in the UK has helped to support house prices in recent months, despite a slowing economy and weaker consumer spending.
The average price of a home edged up 0.2% to £213,000 in April, according to the mortgage lender Nationwide, following two consecutive monthly falls.
It pushed up the annual rate of growth in house prices to 2.6%, from 2.1% in March.
So if LGEN's build-to-sell business is called Cala, what will it call its build-to-rent enterprise? Lala?
Who is defining "affordable"? Affordable for local authorities to place families otherwise perched in hotels? Or affordable for me to retire in?
LGEN no doubt has an ethical model in mind working with housing associations, a genuine attempt to ease the low end housing crisis. And hopefully make money for itself (us), not necessarily in that order. However, a layer of property head lease, property management and sub-let rental agency plus financing costs has me wondering who the deal works for most ... if LGEN remains the landlord then fine, but if it sells on its portfolio to groups like Harbourvest / Helical / Rothesay Life who securitise ground rent and lease revenue streams in order to pay out on annuity commitments then someone will already be imagining ways to exploit the situation eg whopping commissions on the building insurance like the Peverel/Tchenguiz rip off.
LGEN will make its money either way I suppose.
Who is the prime mover in this build-to-affordable rent industry, is there something we can analyse to wonder how it might work for LGEN and we investors?
LONDON, April 27 (Reuters) - British insurer Legal & General on Friday launched a unit to build affordable homes and said it aimed to build 3,000 homes a year within the next four years to become the country's leading private provider
Years of under-investment meant the country is producing 100,000 fewer homes a year than it needs, L&G said in a statement, while the annual shortfall for affordable housing is some 30,000 homes, leaving 1.3 million people on waiting lists.
Legal & General Affordable Homes, part of the insurer's Legal & General Capital arm, would provide capital and work with a range of existing affordable housing providers to help manage the properties, it said.
"Affordable housing is a classic example of underinvestment with minimal new equity capital being deployed to the sector," L&G Chief Executive Nigel Wilson said. "This is not a sustainable position."
Many existing providers were highly leveraged and unable to raise equity to help maintain a sustainable financial structure, said Head of Affordable Housing Simon Century, a fact which limited their ability to grow.
"Legal & General Capital is building a more natural and sustainable model one in which institutional investors are the long-term holders of the assets working alongside the best-in-class affordable housing operators who will provide the highest-quality housing management." (Reporting by Simon Jessop; editing by David Evans)
ONDON (Alliance News) - Legal & General Group PLC intends to buy and develop properties for affordable rent built by other developers, the Financial Times reported on Friday.
The UK insurer is at a very early stage of new business development, as it just has started employing a management team and is working with the social housing regulator to gain approval, the newspaper said.
The FT noted an increased interest in social housing among investors over the past few years.
Legal & General's housebuilding business already has a pipeline of about 3,000 homes across sites in Oxfordshire and Berkshire and is one of the major lenders to developers in the build-to-rent market, it said.
I understand the idea behind trading a % of your holding on the noise in the sp, and there's nothing wrong with that. Call me pedantic though if you like, but if it's a "Strong Sell" then why only see half your holding ?
I'd have gone for "Weak Sell" myself, which, to me, equates to a broker recommendation of "Reduce", whereas "Strong Sell" is more of "Get The F00k out of here right now" kind of thing !
BB - holding at the moment, but by no means against reducing or selling up if the time seems right.
Volatility can be your friend if you trade the wave cum sawtooth, much more fun and rewarding than buy-and-hold forever ... L&G has been good for that, if it does now kick on to 300p it will serve me right.
I agree it is hard to sum up what L&G does nowadays, from pioneering low cost funds to general insurance to equity release to low cost modular housing, but it does ok at whatever it is doing. For some reason I have trust in the brand, if I ever felt the need to buy an annuity or a retirement mortgage I would start here.
Marktime arent all shares sawing. Cant think of a single share in my portfolio that isn't up one day and down the same the next. I blame all those machine trades and rubrics.The momentum in LGEN is the frustrating thing as it doesn't break out of that range and gets a nose bleed at 275 and its very own dark forces pull it back.
My only other concern is that similarly to shares I held before the financial crash. I don't really comprehend what L&G does anymore but its profits and divi keep climbing. Its a bit too familiar to 2007.However my holding in L&G started then with some 60p purchases (not enough mind you and much more exciting to invest in then if you like thrills).
L&G poised for long-term growth, says Berenberg
Insurer Legal & General (LGEN) is set for long-term growth after shedding the baggage of old legacy businesses, says Berenberg.
Analyst Trevor Moss retained his buy recommendation and increased his target price from 301p to 334p. The shares rose 1.7% to 274.3p yesterday.
He said the insurance giant continues to reap the benefits of its focused strategy that has seen it allocate capital to what they are good at.
Unlike some other companies in the sector, any baggage relating to previous strategies and legacies has been eradicated and the disposal of legacy insurance liabilities in December to Swiss Re was the final part of this completed, he said.
The company is pointing in the right direction and has a strategy that we believe will continue to deliver genuine growth into the long term.
I think you only need look to Carillion to see how quickly the diversified business model can unravel the component parts. A complex structure is an opaque structure. It might be a pee in the ocean for L&G, but it just seems and odd move, an additional business - onto of the proven business.
It is an interesting move for L&G, as the differing views here reflect there are significant concerns and risks but also significant potential.
On the risks side:-
-Businesses, especially big ones have poor records diversifying into completely different businesses. Despite recent great markets, house-building is not 'simple' as Bovis recently proved delivering late with many quality problems.
-Skills availability was tight and not going to be easier if all those skilled craftsmen head back to Poland etc. That hits costs, delivery and quality
-Housebuilding has been racing ahead but is about to see higher interest rates, prices tailing off and falling in some areas. Most of us have seen companies rise and fall through the cycle
On the positive side:-
-Modular construction is the way forward for the industry, easier to train labour, lower costs, easier quality control, less weather impact.
- Cala is 600m capital out of 15 Billion, much easier to ride out a down-cycle and add land bank and acquire competitors ready for the upswing. Also high interest rates should push up L&G's core earnings, to soften any weakness from Cala.
-The lack of available housing and the ability to build for rent as part of the L&G portfolio through the cycle reduces the risk of Cala's factories and sites sitting idle.
On balance, this seems like a good move, short term market still looks profitable, the L&G structure should let them take a long term view to benefit shareholders and people who want to buy or rent affordable housing. I hope so, this is one of my bigger holdings.
re "I still think this is a distraction from core business"
Core business ain't what it used to be mate.
L&G are no longer principally an investment manager / insurer. They are principally looking after retirement funds, with investment management / insurance and capital projects being roughly equal, but a fair way below the retirement side.
Some of the capital projects ( including house building ) are presumably being used to produce an income for the annuities for the retirement side, so the business is far more complicated, and more diverse than it was say ten years ago.
Obviously, as well as diversifying the business, that change in the business model has introduced new risks, one of which is related to Capital Projects in general and house building in particular. So far though, they seem to be making a decent fist of it, though there's always a chance it could all end in tears.
This may be a new takeover, but its not new activity. L&G have been developing prefab modular home production for some while now:
I think its an interesting investment strategy, exploiting a significant supply gap. Theres no need for them to share the profits with a conventional builder. It also sits well with the government and the environmental lobby. Yes theres some risk, but this is hardly a radical departure. IMO of course.
Must admit not sure why L&G wants to become a house builder rather than fund someone else. There seems to be some profit for now in full ownership but strategically it doesn't seem like a bolt on to investment and insurance, but a new business model.
The fit could be the commitment to social business model but this is a wholly new option surely.
The UK economy has started the year on a disappointing note, with the construction sector slipping into recession, manufacturing output almost flat-lining and the trade deficit widening by £600 million.
Britain went from being the fastest growing G7 nation to one of the weakest last year as the impact of the Brexit vote weighed on consumer spend and business investment, while other nations enjoyed a global upswing in economic growth.
The latest figures from the Office for National Statistics show that the Brexit vote is having a particular effect on the construction sector, with output shrinking for nine consecutive months and placing the sector in recession. The amount of commercial property work is falling as clients shy away from committing to big projects that can take five years to complete in the face of economic uncertainty.
The Office for National Statistics said that construction output in the UK had fallen at the fastest annual pace in January since March 2013. Output was significantly below economists expectations, falling 3.4 per cent between December and January and dropping 3.9 per cent on an annual basis.
I think the elephant in the room with L&G and Lloyds who are both UK focussed is the impacts of Brexit on financial stocks and markets. The europeans are saying that financial passporting will end, and no trade agreement to include financials. This could obviously be a hammer blow if it pans out.
Its a crystal ball we all need right now and as with all uncertainties there are many medicine men (Gove, Johnson, Hammond, Davis - don't trust any of them) out there with the 'end of the world' A-boards.
My biggest holding by a long way right from the financial crisis, which I had had the b.. to get more and its for the slow growth (I hope - it would appear stella results make for tiny share growth) and divi. However a UK focus may prove to be a restraint on divi growth.
I think the bigger brake lever is Europe otherwise this would be flying.
This year looks like a flatline for the SP unless there is a tailwind to the results
"... for the muted reaction is that after the big percentage gains in revenue and profit, we come to the dividend where the 7% increase which appears miserly"
For me, the important info in the report was :-
Earnings per share excluding mortality release and one-off US tax
This FY : 23.10
Last FY : 21.22
% increase : 9
So I don't think the increase in the divi is miserly, it just reflects the fact that the US tax is very much a one-off, and the mortality release is also very likely to be a one-off
On the 23.1p eps, we currently ( sp is 264p ) sit on just under 11.5 times earning.
We're growing at ~ 9% so have a PEG of 1.25 and a nice chunky yield as well, so I'm hoping for a combination of sp growth and divi of ~15% / year over the next few years.
All over things being equal, If the sp isn't close to 300p before the end of the year, then I'll be disappointed. But, I've said that before on this board,and then been disappointed
"...... As one of the most generous dividend payers in the FTSE 100 Index (UKX), high-yielding Legal & General (LGEN) didn't disappoint today after another well-received set of annual results.
Its full-year pay-out rose another 7% to 15.35p - a figure in line with market expectations as the pensions, insurance and investment company continues to yield in the region of 6%.
While market volatility has held back the shares in recent weeks, they were up 1% to 260p in post-results trading today. In fact, L&G has plenty of fans in the City who believe it should be trading at closer to 300p.
There's also strong support from fund manager Neil Woodford, whose Income Focus and Equity Income funds view the company as one of their core holdings.
After today's results, in which L&G grew headline profits by a bigger-than-expected 32% to £2.05 billion, Barclays Capital noted that the UK company was "building momentum and firepower".
The comment on firepower relates to the £2.2 billion of excess capital over and above a 160% Solvency II ratio. This solvency figure stood at 189% at the end of 2017, compared with 171% in 2016, while L&G estimates it has since grown to 196% on the back of interest rate increases.
Analyst Alan Devlin said: "While this capital is not burning a hole in Legal's pocket, we believe this gives Legal significant firepower for both organic and inorganic investment."
Having seen compound annual growth in the dividend of 21% since 2009, Devlin rejected criticism in some quarters that L&G is overpaying on its dividend.
He noted that today's growth in the pay-out of 7% compared with a rise in underlying earnings per share of 9% in 2017, which is broadly in line with L&G's 10% medium-term growth target.
Explaining his 290p price target, Devlin added: "We think that the strong and transparent cash flows generated by L&G will support the dividend, and the company has levers to pull to protect the dividend in stress scenarios.".......
I think that the main reason for the muted reaction is that after the big percentage gains in revenue and profit, we come to the dividend where the 7% increase which appears miserly. However, as a percentage of the eps, they may have paid too high a level in the past and I believe that keeping the increase fairly modest now, will serve them well for the future. This is a quality company, with good momentum, a very good yield and should amply reward the patient investor.
Totally Underwhelming. Didnt make the news as Rolls Royce stole the show and the SP rise today and had lots of air time. Struggling to find anything on L&G anywhere. I think even with a 100% increase in profits there would have been a shrug of the news shoulders. Seriously less than 1% rise.
I fully agree with you.
I was attempting to have a little fun with
the phrase -which I had not seen before.
The first thing I consider when I make an investment
is the integrity of the senior executives/board- together with the
useful purpose of the enterprise- or otherwise.
One problem arises: the existence of spin doctors in the
preparation of company trading statements and the-
sometimes - lack of transparency within such communications.
I was an investor in RBS - before the crash - so I am more cautious and a little
cynical these days.
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