Persimmon lands deal to build homes on regeneration sites

The York-based group yesterday said it has entered into a joint venture with St Modwen to initially develop 2,000 homes on seven sites owned by the regeneration group.

The deal will cover an initial 120 acres of land and take about five years for Persimmon to build the homes. They will have an end value of more than 300m – over 150,000 a home.

Shares in Persimmon lifted 6.26 per cent to close at 375.2p on the deal.

"We are excited at the prospect of working with St Modwen," said Persimmon chief executive Mike Farley. "This groundbreaking joint venture will provide Persimmon with a steady long-term supply of plots across England and Wales from St Modwen's well-located landbank."

The deal was described as just a "toe in the water" by a St Modwen spokesman, who said further schemes could be added to the joint venture as planning permission is granted.

The sites are all former industrial land where St Modwen has made progress on remediating land and achieving planning consents.

There are two sites in South Wales, three in the Midlands including Longbridge, the former MG Rover car manufacturing site, plus schemes in Darlington and Sunderland.

One site, Llanwern in Newport, is a 600-acre former steelworks, providing significant opportunities to increase the scope of the joint venture in future. A joint venture of this scale and type is thought to be unprecedented in the UK construction sector.

St Modwen chief executive Bill Oliver said: "We are very pleased to have reached an agreement to joint venture this land with a sector-leading house builder with whom we can work to accelerate the delivery of quality housing from our portfolio."

Persimmon has been selectively building its land bank across the country and acquired 4,000 plots in the first half of the year.

However, the 50/50 joint venture will be attractive to Persimmon as it does not require the group to buy the sites, but simply develop them and share the profits.

St Modwen's land bank, dubbed the "Hopper", stands at more than 5,600 acres.

Numis Securities analyst Chris Millington said the deal highlights St Modwen's focus on unlocking value from the Hopper.

"We anticipate the deal will involve St Modwen selling land into the joint venture at or above book value and Persimmon and St Modwen sharing profit equally," he said. "We estimate that St Modwen's average plot cost (outside the M25) is 31,000 and therefore estimate the 2,000 plots have a value of 62m.

"Furthermore, based on the normal housebuilding viability criteria, we estimate the land will produce a gross margin of about 20 per cent and therefore this joint venture has the potential to deliver total profits of 60m from the initial sites."

Persimmon recently said legal completions in the six months to June 30 rose 16 per cent to 4,657 homes, with the average selling price rising eight per cent to 168,500. But the group struck a note of caution, with business over the summer set slow down as people go on holiday. Worries over the heavy public sector job losses and low mortgage approvals are also weighing on the housebuilding sector.

The group opened five new sites in Yorkshire over the first six months and has plans to open another five in the second half of the year. The sites are scattered across Yorkshire and the Humber region and include Grimsby, Selby, Leeds and Bradford.

Blessing by patron saint of wells

St Modwen is a leading regeneration specialist with a network of brownfield sites across the country.

It operates through a network of regional offices, working in partnership with private and public sector organisations.

Its four specialist areas of expertise are town centre regeneration, partnering industry, brownfield developments and restoration of heritage sites.

The company is named after St Modwenna, the patron saint of the wells from which water for the brewing industry is extracted at its first commerical site in Burton upon Trent, Staffordshire.