Watkin Jones Plc – FY-2020 Trading Update

Watkin Jones plc

('Watkin Jones' or the 'Group')

FY-2020 Trading Update

'Active second half drives future confidence across the business'

Watkin Jones plc (AIM:WJG), the UK's leading developer and manager of residential for rent with a focus on the build to rent ('BtR') and purpose built student accommodation ('PBSA') sectors, is pleased to provide a trading update for the year ended 30 September 2020 (the 'year' or '2020').

Highlights

· Resilient operational and financial performance, with seven developments successfully delivered despite lockdown restrictions

· Nine new development sites secured in the second half of the year, with three more expected to be secured shortly, significantly strengthening our BtR and PBSA pipelines

· Increased activity in the institutional forward sale market demonstrates confidence in the long term demand for BtR and PBSA.  Two PBSA developments forward sold subsequent to the year end

· Strong second half recovery with adjusted operating profit for 2020 expected to be in the range £48.0 million to £50.0 million, with revenues of circa £350.0 million

· Repayment of all COVID-19 financial assistance received from the government this year, totalling £0.8 million, in view of the recovery in performance

· Intention to pay a full year dividend for 2020 in line with our policy of 2.0x cover, reflecting our strong cash position, subject to there being no material deterioration in market conditions

Commenting on the year, Richard Simpson, CEO of Watkin Jones, said: “I am really encouraged by our ability to adapt and overcome the numerous challenges presented by the ongoing pandemic, not least for our customers for whom we continue to work tirelessly to ensure that their needs are being attended to.  All of this simply would not have been possible without the enormous commitment and resilience of both our people and our suppliers and I would personally like to extend my sincere thanks to them for their continued hard work.

“As a result of their actions, we have had a strong second half to the year.  We have successfully completed seven schemes and made excellent progress in growing our development pipeline, which will deliver returns in the future.  We have also started to see growing evidence that institutional investors are beginning to recover their appetite for forward funding developments in both BtR and PBSA, and this is confirmed by our news today that we have forward sold two PBSA developments to Student Roost (owned by Brookfield) for £48.8 million.

“We are mindful of the continued disruption and hardship from the COVID-19 pandemic, and so, along with ensuring the well-being of our employees, customers and partners, we have repaid all government financial assistance that we received this year.  The underlying market dynamics for residential for rent, both student and build to rent, remain strong.  As we enter our 2021 financial year, the business has gained real momentum and, with our resilient, diverse and capital light business model, we believe that we are well placed to navigate the challenges and are confident in the future.  Whilst the duration of the latest lockdown measures introduced remains uncertain, we do not currently anticipate any significant impact on our operations.”

Operations

Through the pandemic, our first priority has been ensuring the wellbeing of all our employees, tenants and partners.  We have significantly increased the support we provide to employees and the students who live with us and this has contributed to COVID-secure accreditation from the British Safety Council for both our workplaces and for the buildings we manage.

We were able to swiftly remobilise construction activities, with appropriate health and safety practices in place, when government restrictions began to ease.  We completed six PBSA schemes (2,256 beds) and one BtR scheme for 159 apartments.  As previously announced, only one PBSA scheme has been delayed beyond the start of the new term, and work continues alongside the purchaser and university to minimise the impact on students.

Our accommodation management business, Fresh Property Group ('FPG'), mobilised nine new PBSA schemes in the year (3,593 beds), ready for occupation and management from the start of the 2020/21 academic year, and won mandates for the future management of 1,414 PBSA beds and BtR apartments.  At the start of 2021, FPG had 20,179 PBSA beds and BtR apartments under management across 66 schemes.

Our house building division saw a strong pick up in sales following the relaxation of lockdown measures and introduction of the temporary stamp duty relief.  The division completed 95 sales in 2020 and is well positioned with 25 homes exchanged or reserved going into 2021.

Financial performance

We expect 2020 adjusted operating profit to be in the range £48.0 million to £50.0 million from revenues of circa £350.0 million.  We have also incurred certain non-underlying costs in the year associated with the COVID-19 disruption of approximately £6.0 million and the previously announced provision for cladding replacement costs, now expected to be approximately £15.0 million.

The current COVID-19 disruption to the student letting market does not cause any significant exposure to us in respect of the fee revenue earned by FPG on its contracted portfolio of assets under management.  However, as previously announced, we do hold six legacy leased PBSA assets.  The lower level of student occupancy for the 2020/21 academic year is currently expected to result in a reduction of revenue for us in 2021 of approximately £5.0 million.  This will result in an impairment in the carrying value of our right of use assets, the cost of which is expected to be £1.9 million and is included in the non-underlying COVID-19 costs referred to above.

The resilience of the business is reflected in our continued strong cash generation.  We expect to report a 2020 year-end gross cash balance of circa £130.0 million and a net cash balance of £90.0 million, after deducting site specific loans of £40.0 million.

Forward sale markets

Activity in the institutional forward sale markets started to recover in the latter part of 2020 and we are pleased to report that post the year end we forward sold two PBSA sites (659 beds), in York and Bristol, to Student Roost (owned by Brookfield) for delivery in 2022.  The consideration payable to Watkin Jones for the development works over the next two years, net of client funding costs, is £48.8 million.  We are in negotiation on further potential sales from both our BtR and PBSA pipelines and we continue to achieve margins in line with previously guided levels.

Development pipeline

The development pipeline of BtR and PBSA sites continued to build in the second half of 2020, with nine development sites secured and a further three expected to be secured imminently.  These development sites are well located in London, Edinburgh, Manchester, Birmingham, Bristol, Glasgow, York, Guildford and Leicester.

We also secured planning permissions for 296 BtR apartments and 992 PBSA beds across five sites.

Our delivery pipeline now comprises over 4,350 BtR apartments and 8,450 PBSA beds as follows:

We are well placed to capitalise on opportunities presented during this period of disruption and we will continue to add to our development pipeline over the coming months, whilst being careful to protect our liquidity position against the potential for further interruption to the forward sale markets and to building activities.

Note: References to 2020, 2021 and 2022 are to our financial years ended 30^th September.

Notice of Final Results

We will make a further announcement in due course regarding the specific timing of our Final Results.