Watkin Jones plc - Trading Statement
The Board is pleased to announce that it expects to report revenues and underlying earnings (which excludes non-recurring profit items) for the financial year slightly ahead of its previous expectations. The Group's strong trading over the Period has also been reflected in its cash performance.
In the Period, Watkin Jones completed ten student accommodation developments across the UK with a total of 3,415 beds. As previously announced, at the end of FY18 the Group successfully completed an agreement for the forward sale of a portfolio of four student accommodation developments comprising 1,815 beds for delivery in FY19 and FY20, together with an option for the forward sale of a fifth student accommodation development of 348 beds for delivery in FY21.
As a consequence, the Board is pleased to report that of the six schemes now scheduled for delivery in FY19 (2,723 beds), five schemes comprising 2,646 beds have been forward sold. For FY20, the Group expects to deliver seven schemes (2,606 beds) of which four schemes comprising 1,844 beds have so far been forward sold. The remaining four schemes for delivery in FY19 (77 beds) and FY20 (762 beds) are secured. In addition, the Group continues to build its delivery pipeline for FY21, with four development sites (circa 2,189 beds) already secured. The location and forward sale values which have been achieved for the schemes scheduled for delivery in FY19 and FY20 underpin management's earnings expectations from the student accommodation division over these two years.
Build to Rent
Watkin Jones continues to make good progress with its strategy for the Build to Rent sector. As previously announced, in the Period the Group entered into development agreements with M&G Real Estate to deliver a high profile Build to Rent scheme of 315 apartments in Reading and with Singaporean incorporated Lum Chang Holdings Limited and Sin Heng Chang Private Ltd to deliver a scheme of 300 apartments in Wembley, both of which are for completion in FY21. Including these two developments, the Group now has a secured delivery pipeline of approximately 1,500 apartments across seven sites, which it is targeting to deliver over the period FY19 to FY22. In addition, the Group has several other site opportunities which are in legal negotiations to acquire or are under offer.
In the Group's FY18 interim results statement, the Board announced that it was at an early stage of exploring ways to enhance shareholder returns from the longer term value creation opportunity of the Group's Build to Rent programme, including consideration of establishing a new investment vehicle. The Board is continuing to evaluate its options and will update shareholders as appropriate.
The Watkin Jones residential division had a good year and completed 175 sales (FY17: 94 sales), comprising a mix of homes and apartment sales across the division's North West residential sites.
Fresh Property Group ('FPG')
As at the start of the 2018/19 academic year, FPG had 15,421 student beds and Build to Rent apartments under management across 56 schemes (16,617 student beds and Build to Rent apartments under management at the start of the 2017/18 academic year across 57 schemes). Of these 56 schemes, 52% were not developed by Watkin Jones.
As previously announced, the anticipated drop in units under management reflects the loss of 4,597 student beds following the sale of the Enigma property portfolio by the Curlew Student Trust. However, in the Period, FPG was appointed as manager for 14 new schemes effective from the start of the 2018/19 academic year, resulting in a net drop in units under management of only 1,196.
Under the terms of the management contracts with the Curlew Student Trust, FPG has been compensated for the early termination of those contracts relating to the sale of the Enigma portfolio. In addition, as FPG holds a carried interest investment in the Curlew Student Trust, which was established when the Fund was launched, in recognition of the importance of FPG's role as property manager, it received a share in the profit arising from the sale of the Enigma portfolio. These two items have given rise to a circa £4.0 million non-recurring profit in the Period, which is in addition to the Group's underlying earnings performance.
Watkin Jones continues to maintain excellent visibility over future revenues and earnings, supported by the pipeline of forward sold and secured sites for the student accommodation division. The Group's success in securing the significant Build to Rent development agreements for the schemes in Reading and Wembley in the Period, together with the pipeline of sites which the Group has secured, is highly encouraging. In addition, the Group's residential and accommodation management divisions are well positioned to contribute to progressive growth in earnings. As a result, the Board remains confident in the future outlook for the Group.
Mark Watkin Jones, Chief Executive Officer of Watkin Jones plc, said: "Trading in the Period has been strong and we are pleased to report that revenues and underlying earnings for the financial year are expected to be slightly ahead of the Board's previous expectations.
We have achieved excellent progress on forward sold student accommodation developments, successfully completing all ten schemes scheduled for delivery in the Period and continue to see strong demand from institutional investors. We are also encouraged by the progress that has been made in the Build to Rent sector, with the agreements for significant developments in Reading and Wembley demonstrating our position as a developer of choice for leading institutions.
The Group has a strong development pipeline that provides us with excellent future earnings and cash flow visibility, demonstrating the robustness of our model and ability to deliver significant returns for our shareholders."
The Group will be announcing its Final Results on Tuesday, 15 January 2018. An analyst briefing will be held at 09.30hrs at the offices of Buchanan, 107 Cheapside, London EC2V 6DN.