Developer and manager of residential for rent – Watkin Jones – announces its annual results for the year ended 30 September 2023 (FY23), which is in line with their October trading update.
Although the Group faced severe headwinds with build cost inflation presenting significant challenges, and higher interest rates and economic uncertainty resulting in the investment market being effectively closed for much of the year, Watkin Jones delivered a good operational performance in FY23. The company completed four schemes and continued to acquire sites and progress them through planning.
Overall, revenue was £413.2m – up 1.5%. Gross profit declined to £34.9m from £67.6m in FY22 and adjusted operating profit before exceptional items was £0.2m. This reflects the reduction in forward sales, lower margins across certain in-build schemes, the impairment of the Group’s non-core land bank and certain pipeline assets and the book loss on disposal of the non-core private rented sector assets.
Watkin Jones had adjusted net cash of £43.9m at the year end and total cash and available facilities of £103.6m, so the company remains soundly financed.
With strong demand for Build to Rent, this was the biggest contributor to the Group’s results, reflecting progress with developments under construction and modest revenues from a forward sale. Demand for this asset class resulted in high occupancy levels, good letting and retention rates, and robust rental growth.
“We know that supply is not keeping up with demand, which is fuelling the very strong operational performance, rental growth, occupancy levels and let up rates. That in turn drives the asset performance. Residential has held up very resiliently compared to other real estate asset classes, which drives confidence from investors and increases allocations.”Alex Pease, Chief Executive Officer, Watkin Jones
Total revenues for the year from Build to Rent was £207.7m, up 8.6% compared to £191.2m in FY22. Revenues included the build-out of the Group’s forward sold developments in Hove, Lewisham, Birmingham and Leatherhead, as well as a development partnership scheme in Cardiff.
Watkin Jones also forward sold the Titanic Quarter development in Belfast, which includes 627 Build to Rent homes and 81 social rent affordable homes. Construction will start in FY24 and the contribution to FY23 was restricted to a small profit on the land transaction.
The company’s secured Build to Rent development pipeline has an estimated future revenue value of c.£0.6bn (FY22: £1bn), of which c.£447m is currently forward sold (FY22: £517m).
Gross profit for the year was £19.8m, a decrease of 39.6%. The gross margin was 9.5% (FY22: 17.2%), reflecting the lower margin of the schemes that were forward sold towards the end of FY22 and the impact of build cost inflation.
CEO Alex Pease and CFO Sarah Sergeant told BTR News that the key theme that holds true is the adaptability and resilience aspect of the business. Whilst in a challenging year, the company maintained a strong year end cash position of £72m with a low level of debt in the business.
Watkin Jones are determined to be well positioned to rebuild their pipeline when market conditions turn, as the Group did following the global financial crisis and the Covid-19 pandemic. The company also recognises the importance of adapting to current conditions.
While remaining focused on the company’s core forward fund model, Watkin Jones will also be looking at potential opportunities to diversify its revenue streams. This would be through development partnerships and refurbishment opportunities for institutional clients. Alex told BTR News that this should generate revenue and margin without requiring significant capital investment.
“Significant cost inflation and volatility in real estate funding markets meant that FY23 represented a period of unprecedented challenge for the business. However, I am pleased that against this backdrop the Group demonstrated resilience and agility, taking a number of important actions operationally.
“Whilst funding conditions remain difficult, the outlook is gradually improving and the strong asset performance in PBSA and Build to Rent sectors gives me confidence in the longer-term market recovery and return to growth. In the near term, we remain focussed on driving improvements to the productivity and efficiency of the business, as well as looking at opportunities to extract more value from our sector expertise and end-to-end capabilities.
“Watkin Jones continues to have a market-leading team and offering to the residential for rent sectors and we are taking the right steps to ensure we are well placed to capitalise on this, as conditions improve.”Alex Pease, Chief Executive Officer, Watkin Jones