CEO interview - The Property Franchise Group

Lead Manager, Oliver Bedford speaks to Gareth Samples, CEO of The Property Franchise Group (TPFG)

Our most recent CEO interview takes a deep-dive into the property market with CEO of The Property Franchise Group, Gareth Samples. Following a much anticipated merger with Belvoir earlier this year to form the largest letting and sales agent in the UK, we find out about all aspects of the company's rounded business model and how this has contributed to its ongoing success. 

The interview also covers:

• How the recent challenge of higher interest rates has affected business performance
• The outlook for the housing market, including lettings.

Read the full transcript below.

Oliver Bedford: I am delighted today to be joined by Gareth Samples, chief executive of The Property Franchise Group, otherwise known as TPFG. TPFG acquired Belvoir on 7 March this year.

It was a deal of two companies which were similar in size, similar business models across lettings, estate agency and financial services, and one that had near unanimous support when it came to shareholder vote. Much anticipated, took a long time to get the deal done. Congratulations.

Gareth Samples: Thank you.

Oliver: But why did it take so long?

Gareth: I think it's a really good question. When I first joined the business back in 2020, my first set of investor roadshows said, "When are you going to do the Belvoir deal?" And I think every investor roadshow Dorian asked the same question. So there was a certain inevitability about it happening.

First part of 2023, market was tough. Dorian called, said, "Can we have a meeting?" We met and big frustration for both of us, I think was that we believed that our businesses were undervalued, and we were never going to really release that value unless we came together.

We'd been at the altar a few times before, so we'd been in discussions in 2017 and pre-float actually. And for whatever reason it didn't come together. That very first meeting. We talked about potential showstoppers. We talked about what had stopped it happening in the past. And the first question was, "Can we get over those issues?" And I felt we could.

And what was really interesting, that very first meeting, we agreed some principles that actually when you looked at the deal on 7 March, we were able to pretty much deliver what we agreed on that day. So, delighted. Why did it take so long? I think we both got to the stage where 10 years on the market, trying to get that valuation, that it was never going to happen individually and coming together is sort of that ‘two and two equals five’.

And it really is now a powerhouse. When you look at the results and the numbers that it will kick off going forward. It's a really exciting business and proposition for me to take forward.

Oliver: So what do the merged enterprises look like now?

Gareth: 15 brands, seven national, eight regional, £67m worth of turnover, profit before tax of about £18m, nine from each business. They were very similar performing businesses. Difference in Belvoir was big financial services business. Difference in TPFG, a big hybrid disruptor business, UMove. But bringing the two together, just perfect.

Oliver: Well, we'll come back to UMove later on. Sure. I mean obviously there's some overlap in overhead, which will create some opportunity for efficiencies. You haven't guided the market on those, but you also have overlap in your high street presences.

In fact, before you merged one another, you already had brands, your own brands competing against one another on the same high street. And that's obviously more the case now. To an outsider that might look a bit curious, that you'd be competing against your own businesses, but why do you do that?

Gareth: So it's not really us competing. If you think about it, each business has a franchisee that runs it. They'd say 99% of the focus and the involvement locally is that franchisee. We provide a brand, a website, marketing support, a team of people to help them.

And they bought that brand because it resonated with them. So, ultimately, if I came in and said, "We're going to do away with Belvoir and just have Martin & Co," there'd be uproar. They bought it for a reason, and that brand is their brand, and to take that away from them would be just a ridiculous suggestion.

Oliver: So you're a franchise company, and you often see that model in restaurant businesses and in leisure. Why is it so popular within estate agency.

Gareth: Probably represents about 10% of the market. So 10 to 12% of estate agency operations are franchised. And you have two options if you think about it. You can go and set your own business up with your own brand. So Samples and Co. You have to found your own website, tech company, cybersecurity company, your own marketing.

So it's quite a lot to do. And that's very costly if you're trying to do it on a single unit basis. Or you can buy into a franchise model where it's an established brand, you've got marketing support, you've got the website, the portals, everything. It is a business, it's a well-known recognised brand and that for 10 to 12% of the market is what appeals to them.

It's also very lonely to run a business if you’re a single operator, it's very lonely. So the support we provide in terms of managing directors for each brand, operations directors working very much as a consultant with that franchisee to help them look at their opportunity and maximise that opportunity and profit at a local level is something you wouldn't get if you were doing it yourself.

Oliver: So you have your head office sitting atop essentially a large network of owner-managed businesses underneath them.

Gareth: Yeah.

Oliver: And you talked about some of the support you give them, but you also have a balance sheet and you can provide that support and help their growth journey. How do you do that?

Gareth: So the main way I guess would be through the Assisted Acquisitions programme. Belvoir did more than TPFG has done historically, but we're very keen to support our franchisees to buy lettings books, to increase their market share locally of lettings transactions, and quite a number of transactions come up.

So a competing business looking to exit, retire, buying a 100, 150 additional lettings units into their existing portfolios for cost-effective, good margin. So if we can help the franchisee accelerate their growth through providing funding, we're really happy to do that.

Oliver: Yeah, so obviously both you and Belvoir had very successful M&A strategies. You've acquired a lot of businesses and then within that you have that sort of infill programme, which you can then use to help them grow, and in turn help you absolutely drive growth as well.

Gareth: Absolutely. Yeah.

Oliver: The business model itself came under pressure a number of years ago with the emergence of the online disruptors such as Purplebricks. It was a difficult time, I suppose, or maybe it wasn't as difficult on the ground as investors might've perceived it to be, but certainly there was concern. TPFG responded by buying UMove, as you said.

Now in the fullness of time, the disruptors didn't succeed, and your business model thrived. Why do you think that was?

Gareth: Looking back, it was clearly a threat. 2015, 2016, the sort of housing days of Purplebricks and their share price movement towards a billion pounds was a worry.

But if you look back at all of the stats, no more than 8% of the market ever went to a disruptor online agent. So 92% of potential sellers still use the traditional estate agent.

So yes, it was a concern, yes, it was a worry, but it never got to the level where it was going to destroy established local businesses operating in the high streets, in the towns and cities, and you've then followed that story. So there's no real big disruptor brand that's broken through. And I talk quite a lot in the investor presentations about UMove being the most successful one from a profitability perspective.

So I think our model is right. It's very much a franchise model, so it's the franchisee's business.

We again provide all of the tools, ‘business in a box’ we call it, that they buy on a monthly basis. And we've been able to scale that business, not spectacularly quickly, but in a way that is sustainable.

So we would do in a good year, 50 to 60 new territory sales. We currently have 200 UMove territories operating. A good year is 50 or 60 new sales. Last year, tougher did about 32 sales last year.

But the opportunity for what is now a profitable business is to grow that to 400 or 500 territories. So that will become the UK's largest single brand estate agency group this year or next year. It's getting stronger, it's getting more recognised. It made us £1.5m profit last year in what was a really tough market. It was a really good stress test for a hybrid business last year, and we'll go from strength to strength over the next three years.

Oliver: So maybe it's the hybrid business model that is the one that will survive in the long term.

Gareth: Yeah.

Oliver: The housing market’s been through quite a tough period or certainly quite a lot of change in the last few years, which probably starts back to COVID. I mean the time clearly was a huge amount of uncertainty about what that might mean for your companies. But how did it work out in the end?

Gareth: I joined the business the month before lockdown, so February 2020, and we went straight into lockdown, which initially I thought, "Blimey, what have I done here?"

But actually, I probably learned in three months what it would have taken me three years to learn if COVID hadn't happened. And we provided incredible support for our franchisees in what was a frightening sort of period.

And our job as a franchisee, I go back to that support and why do people want to be a franchisee. We put a sort of support team in place. We had calls every single day, because nobody knew what furlough was. Nobody knew how to get their rates back. And yeah, there was lots of things that we could do to help our franchisees who were terrified, let me add, that they were going to lose their business. Lots of things that we could do for them that they were very, very grateful for, so the relationship between franchisor and franchisee became much closer, much tighter, and it was a real platform actually.

The upside was estate agency came out of COVID quite quickly. So we were one of the first businesses that were allowed to reopen with certain conditions, and I think COVID drove the market. So you were living in lockdown, you were confined to your house and you realised, it was either too big or too small, or you wanted a garden or you wanted to be on your own, and there's lots of different factors that lockdown accentuated. So coming out of lockdown with some government stimulus, with the three stamp duty holidays that came in 2021, the market was active almost immediately. And I think our model, again, owner of the businesses were able to... They're nimble. They were able to react quicker than the big corporates who still had loads of staff on furlough. They were only going to bring certain people back.

So, our franchisees definitely took market share in that period, and that gave them a real sort of springboard for the great market that we saw in 2021.

Oliver: And then obviously more recently we've had the challenge from higher interest rates. How have those fed through to housing transaction volumes?

Gareth: So if you look back 2011 through to 2019, pre-COVID average was 1.1 million transactions and it was very consistent. There were a few spikes and a few dips. We then came out of COVID and in 2021, 1.5 million transactions. So everybody did really well.

2022, also a really strong market, 1.25, but our sort of level is always, we always talk about 1.1 million transactions as normal. 2023 was tough.

It is probably my toughest year since I've been at the group, and to have delivered record profits even in the most challenging market I've experienced since I've been here, I was really delighted about, and we'll talk about how we did that, but the number of transactions last year was about 1,000,020, so down 10% on norm, we were able to mitigate that through the lettings rent inflation rents were going up in '22, '23, significantly double-digit growth.

So to be able to report record profits in 2023, we were really delighted to do that.

Oliver: I mean, you have a sort of nice balanced model, got staging, and then you've got financial services as well. I mean, clearly you would expect the sort of drop off in transaction volumes to impact that, but actually it's not necessarily been the case. Why is that?

Gareth: I think at the start of the year, that's exactly what Dorian and Louise thought, the transaction market was subdued. It may well have been why we met up in March, but the transaction levels were subdued.

Michelle Brooks, who runs our financial services business, obviously transaction numbers are important, she'll do 20-odd thousand mortgages a year. But what was really interesting, although they were concerned with the Liz Truss budget, the interest rate increases month on month on month, they've got this massive back book of people that have done mortgages through them historically. And it's like recurring income. If you've got the right processes, I can contact a customer six months before the end of their mortgage, and I've got a free hit if you like, to make sure that I get them onto a different deal.

The other thing that was quite interesting last year with product transfers and remortgages, although the transactional market was subdued, we were able to get into that back book, write high volumes of product transfers and remortgages, and the great news with them, they didn't take six months to go through.

So a sale at the moment, a transaction from sale agreed to completion, and getting paid is like five, six months. Product transfer can be three weeks, so you can get the money in quicker. So they really focused on that and they delivered... The plan they set at the start of the year, they actually delivered by the end of the year and in March they never thought they were going to do that. So we were delighted when you saw that business, in terms of the sort of installation that back book gives you.

Oliver: I suppose that time to completion is what helped you in COVID, but now actually it's a different remortgaging profile going through. So it's that sort of rounded business model that's been so attractive to investors.

Gareth: Yeah.

Oliver: You know, now we are hopefully closing on our first interest rate cut. How do you see the housing market at the moment? You read about increasing numbers of houses coming on. Is it a buyer's market? Or how do you see it?

Gareth: Well, I've been quite shocked, actually. So, '24, and we're not very good at predicting, I guess, but '24 has started much stronger than we thought, the activity level.

So there are more houses coming onto the market, but there are more buyers in the market. Prices are stable/increasing slightly. I wouldn't say there's a boom on, but the level of transactions has surprised me.

So this year certainly looks like 1.1 at least, maybe 1,150,000, so that'll be 10 to 12% up on last year, looking at the numbers we've got so far, and when you look at the transaction timeframe being five, six months, we are nearly at the end of the year, because by the time we get to September, that's it. Your sales activity for 2024 is gone.

Oliver: And in fact, in your most recent update, you, I think reported that the first quarter had been ahead of expectations for revenues and profits.

Gareth: Absolutely.

Oliver: Which is obviously great to hear.

The lettings market. You touched upon how rental fees have been going up quite a lot. Is that because the market's healthy or is it a sign structural weakness, because of change in taxation policy and the government's approach to landlords?

Gareth: I think you’ve got to go back a bit. Rents didn't increase from 2010 through to about 2020. Landlords were happy keeping the tenant, not reviewing the rents as aggressively as they could have done, because their interest rate was so low and it wasn't going up. So there was some catch up.

There was some two-bedroom apartment in Nottingham historically renting for £500 to £600 a month when it should have been £800, £900 a month. So that initial jump from £600 up to £900 looks extreme, but it's because you didn't put it up by £50 a year for the 10 years where rents remained flat.

And that's going to take a long time to wash through. So rents, the lettings book we now control, which is post-deal, 150,000 properties on behalf of landlords. We're still seeing close to double-digit growth this year, because the stuff that maybe went up in rent in 2022 now that needs to go up again. You're constantly working on that, and I think that will settle at about 4% annually, rent inflation, which is really good when you've got as many properties to look after as we have.

Oliver: Gareth, thank you again for joining us. It's been an absolute pleasure as always.

Gareth: Oliver, thank you very much.