Directors' Valuation of the Investments Portfolio

The Directors’ valuation increased by 3% to £1,254 million (2023: £1,212 million). The portfolio is 58% weighted towards the US (2023: 58%). The number of projects in the portfolio increased by one to 60 (2023: 59).

Movement in value 2023 to 2024

Balfour Beatty invested £28 million (2023: £31 million) in new and existing projects. During the year the Group added two new investments: a student accommodation project in Denton, Texas, and a multifamily housing project in Mount Laurel, New Jersey. 

Cash yield from distributions amounted to £34 million (2023: £48 million). Balfour Beatty continued disposals in the year with proceeds of £43 million (2023: £61 million), with the Group reducing its stake in the Northside student accommodation project at the University of Texas at Dallas. A preferred bidder student accommodation project in the UK was cancelled and has been removed from the portfolio.

Unwind of discount at £81 million (2023: £87 million) is a function of moving the valuation date forward by one year with the result that future cash flows are discounted by twelve months less. 

Operational performance movements resulted in a £2 million decrease (2023: £1 million). The operational performance movements in the UK were primarily due to recovery of costs for previous repairs on a faulty OFTO cable, offset by a higher costs and risk premia on certain assets. In the US, higher than forecast rental increases on the military housing portfolio were offset by higher costs, including an increase in independent compliance monitor costs. 

The exchange rate movement was a £12 million increase (2023: £43 million decrease). This was driven by sterling depreciating against the US dollar, slightly offset by sterling appreciating against the euro and thereby reducing the valuation of the one euro denominated project in the portfolio.

Methodology and assumption changes

this methodology cash flows for each project are forecast based on historical and present performance, future risks and macroeconomic forecasts. They also factor in secondary market assumptions. These cash flows are then discounted using different discount rates, which are based on the risk and maturity of individual projects and reflect secondary market transaction experience. The main exception to the use of DCF is for US multi-family housing projects which, due to the perpetual nature of the assets and the depth and liquidity of the rental housing market, are valued based on periodic broker reports for each property. 

UK discount rates range from 7.25% to 10.25% (2023: 7.25% to 9.25%) depending on the maturity and risk of each project. The implied weighted average discount rate for the UK portfolio is 8.4% (2023 8.3%). A 1% change in the discount rate would change the value of the UK portfolio by approximately £48 million.

US discount rates range between 6.25% and 10.5% (2023: 6.25% and 10.5%) and the implied US weighted average discount rate is 7.9% (2023: 8.1%). A 1% change in the discount rate would change the value of the US portfolio by approximately £79 million.

The portfolio remains positively correlated to inflation. A 1% change in the long-term inflation rate in the UK portfolio would change the valuation by approximately £28 million and a 1% change in the long-term rental growth rate in the US portfolio would change the valuation by approximately £74 million. 

As in previous periods, the Directors’ valuation may differ significantly from the accounting book value of investments shown in the financial statements, which are produced in accordance with International Financial Reporting Standards (IFRS) rather than using a discounted cash flow approach. A full reconciliation is provided in section i) of the Measuring Our Financial Performance section in  the 2024 Annual Report on pages 80 to 85.

Portfolio valuation December 2023

Value by sector

Value by phase

 Value by income type