annington annual rep 2019-web - Page 16

Strategic report | Strategies
The Group enjoys a unique role as the
MoD’s primary landlord, benefiting
from stable, long-term, contracted
rental income with the potential for
significant capital appreciation. The
key strategies of the Group are to
appropriately manage the MQE portfolio
and to diversify its business by actively
managing and strategically expanding
the Non-MQE Portfolio, which invests
in the private rented sector. The key
elements of the Group’s business
strategies aim at creating value across all
activities and are described below.
Focus on the Site Review
The purpose of each Site Review is to
rebase the rent for each individual Site to
the fair market rental value for the Site as
a whole, reflecting the various features
of the underlying lease arrangements
with the MoD.
On 7 March 2019, and after 18 months
of negotiation, an agreement was
reached with the MoD to expedite the
Site Review 2021-2024 process. This
accelerated process, carried out over
24 months to March 2021, is designed
to produce an equivalent result to the
Site Review, but in a shorter time frame
and at a significantly lower cost to
both parties. It will also give Annington
and the MoD certainty in relation to
the future rents payable for the MQE,
although the revised rents will not be
payable until the contracted dates
in the Underleases. Management is
engaged in active discussions with the
MoD over the expedited Site Review
process. These talks are ongoing and
management will continue to focus on
these discussions to secure a positive
outcome for all stakeholders, including
military families and our shareholders.
Appraisal and management of
The Group appraises Released Units in
accordance with strict criteria designed
to optimise returns on investment and
to examine all potential options on a
Site-specific basis, including whether to
sell the Units to third party purchasers
or to members of the Group holding
the Non-MQE Portfolio in order
to expand its private rental sector
capabilities. Management reviews and
evaluates options for Released Units and
pursues appropriate strategies having
regard to market conditions and other
circumstances existing at the time. The
Group may also choose to rent certain
properties prior to sale if this approach
appears more likely to yield greater
value due to market conditions or
otherwise. In respect of Released Units
which are intended to be sold to third
party purchasers or rented on the open
market, the Group optimises its strategy
to minimise the cost and reduce the time
from release to sale.
Diversify and expand private rental
Through the Non-MQE Portfolio, the
Group intends thereby to continue
diversifying its property portfolio, by
letting at market rates to the MoD or
third parties on the open market, and
improve its returns through actively
managing tenancies and rental levels.
The Group is in a unique position to
leverage its management expertise
and operating platform developed
through running its existing Non-MQE
Portfolio to expand further into the UK
PRS sector. Annington sees significant
opportunity over the medium-to longterm; the Group is open to considering
opportunities that fits its strategy
16 | Annington Limited Annual Report & Accounts 2019
to provide UK families with more
affordable, quality homes. The Group
will continue to monitor the market and,
when the risks evident in the current
market have subsided, intends to look
for appropriately priced opportunities in
the PRS sector.
Proactive management of existing
rental portfolio
The Group is an established provider
of private rental housing, with plans
to grow and provide more affordable,
quality, family homes in the UK. Its
target tenants are households who
want to transition from small flats to
family houses. The Group’s disciplined
and value enhancing approach means
it offers a long-term solution to help
address the UK’s housing crisis. Where
there may be an upcoming void
property, Annington performs a review of
the local property market to determine
the optimal solution for that property.
This includes assessing what rental
level should be achieved on re-letting
and potential alternate options will be
considered, including refurbishment,
redevelopment and disposal. The
Group intends to target locations where
a particular housing demand is identified
or where housing market conditions are
anticipated to improve.
Seek out development opportunities
The Group will continue to pursue
investment opportunities when market
conditions and the terms of its financing
arrangements permit, including entering
into joint venture arrangements where
a sharing of skills, assets and resources
provides the possibility of increased
Annington Limited Annual Report & Accounts 2019 | 17


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