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Countdown begins as U+I’s new chief starts 100-day strategy review

With U+I nursing a £50m loss for the six months to 30 September last year, its shareholders already had a lot to digest from its latest market update.

But on top of the downbeat figures came the news that chief executive Matthew Weiner was to depart after more than two decades at the company, to be replaced by chief development officer Richard Upton (pictured).

It is just one of several changes under way at the company this year, with chief financial and operating officer Marcus Shepherd also preparing to step down from his role.

As U+I’s new chief, Upton’s first task is to kick off a 100-day strategy review to slim down its portfolio to fewer, higher-margin projects. The outcome will be unveiled on 26 May and is likely to be, to use Upton’s words, a “pivotal” moment as the company looks to adopt a more “simplified and focused” approach and deliver “more consistent returns” for shareholders.

Disposals

The goal is to generate around £50m from non-core disposals this year and a further £80m during the 2022 financial year. The company’s investment portfolio, the value of which dropped by 7.8% to £121m in the six months to 30 September, will no longer be treated separately from development and trading.

In total, the company plans to reduce its gross recurring overheads by 43% to 12m by the end of its 2023 financial year.

As part of the cost-saving programme, the company says it has concluded the second part of its redundancy round. Total staff numbers have reduced by just over 40% since the start of the financial year, in line with its focus on streamlining projects.

The developer also aims to relocate to a smaller office and is seeking a tenant to take over its lease at its 31,105 sq ft HQ at 7a Howick Place, SW1, via CBRE and Pilcher London. It has paused all discretionary capex, preserving around £33m in cash for its 2021 financial year.

“Our review will define our focus as a lean company that is best-in-class in regeneration,” Upton tells EG. “We will be a total returns business… with leaner overheads, stronger liquidity and sensible leverage.”

But is it the right time for the company to be selling off assets, if it wants to achieve the best value? Upton is upbeat on this front. He points to its disposal of Swanley Shopping Centre for £10.9m, marginally above March 2020 book value, and its impending sale of Belsize Park, on which it has exchanged contracts “at book value”. More non-core sales are in the works.

And although he acknowledges that there have been exceptions to this, in what has been a difficult lettings market, the new chief executive says it is an “orderly” disposals process.

“This is not a fire sale,” Upton adds. “We have around £40m in the marketplace, at or above book value. We don’t need to sell; we’ve got a strong enough cash position.”

Even amid ongoing uncertainty, Upton says he is still finding it a “reasonably active market”, highlighting that a number of parties have already expressed interest.

“Patient capital”

The developer is also continuing its search for funding on several projects, although Upton says it is now preparing these for “more patient capital”. He highlights that the company was ready to go to the capital markets in September to seek funding for the £1.4bn Mayfield regeneration in Manchester, but that the advice was to wait until there was greater clarity over the timing of Covid-19 vaccines.

A share buyback programme is another possible outcome of the review, although, as Shepherd points out, the short-term nature of such initiatives means that they do not have a “great history” of narrowing a share price discount to asset value.

“Once you finish the programme, the discount tends to widen again,” Shepherd says. “It’s something the board will always look at, but it is never a simple equation.”

As founder of Cathedral Group, which U+I acquired in 2014, Upton is already well acquainted with the business. Regardless, he has a tough challenge ahead of him to get U+I back on track.

He hopes that he can look back on his time at the helm as someone who was able to “liberate the potential” in the developer’s team.

“I think perhaps with some of the complexity of the business and some of our projects and our organisational structure, it hasn’t been as good as it can be to liberate the potential of some of our brilliant people, some of [whom] have been with us since they left college,” he says.

“My key role is to demonstrate there is a really strong place for a great regeneration company in the public sector – to deliver some returns and get a following from the investment market, to show that great places deliver great profits in a thoughtful way, and that property development can be a really positive thing.”

See also: The EG Interview: U+I’s Weiner and Upton on riding out recession

 

To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette

Photo by David McHugh/Brighton Pictures 07768 721637

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