Jim Armitage: Swoop for Telford offers grounds for hope on housing

There are two ways of seeing the bid on Wednesday for London builder Telford Homes.

If you’re a shareholder, you’re miffed your business is being bought with zero premium to the share price of four months ago. If you’re a Londoner prone to waking up nights fretting your kids will never afford to live in this city, you’ll be reassured.

To explain: Telford is one of London’s biggest builders. Faced by a slowdown in the sales market, it recently announced a major shift to build-to-rent. The move makes sense: as London’s population grows and house prices stay high, demand for decent rentals will rise. Build-to-rent is lower risk because you tend to have a partner ready to buy the properties before you start building, so are not reliant on the seesawing of the sales market.

However, you get lower margins and often have to hold a stake in the properties long after you’ve built them, sometimes having to do the leasing and estate management too.

That’s a very different, more capital-draining proposition than build-sell-repeat. Pension funds seeking predictable returns over 20 or 30 years love it; stock markets wanting fast bucks, less so.

That means being owned by a US giant such as CBRE is good news: the bidder has the deep pockets to invest more long-term capital and will accelerate its building programme.

The grim bit is the price. CBRE has swooped just months after a profit warning. Cue complaints it’s taking advantage of a short-term shares slide. But much of that warning was over the shift to rental, which isn’t going to change. The shares weren’t bouncing back anytime soon.

Telford’s relatively high debts and new business model make rival bids unlikely, too. So, sorry shareholders, but this bid looks as good as it gets.