Developer and manager of residential for rent – Watkin Jones – announces its annual results for the year ended 30 September 2023 (FY23). Results are in line with their October trading update.
Revenues from the Group’s PBSA development business was £175.7m, a decrease of 2.4% on £180m in FY22. Revenue also includes the rental income from Watkin Jones’ four leased student accommodation assets. The rental income on these was £9m (FY22: £13.6m), a decrease of 33.8%, with the impact of the prior year disposal of two assets offset by continued strong student occupancy at the company’s remaining sites.
During the year, the Group delivered four developments – three PBSA schemes in Edinburgh, Colchester and Swansea, and a 133-unit co- living scheme in Exeter.
The company also forward sold an 819-bed PBSA scheme in Bedminster, Bristol, for delivery in FY24. The development is in a key regeneration area and has strong environmental credentials, with a target BREEAM rating of Excellent.
Gross profit for the year was £11.4m (FY22: £26.4m), resulting in a gross margin of 6.5% (FY22: 14.7%). The reduction was in part due to additional build costs on the Exeter scheme, where the third-party main contractor went into liquidation, and because of the acceleration costs required to achieve completion on certain schemes.
In Exeter, the company’s self-build capabilities enabled them to step in quickly to minimise delay and deliver to the revised timetable agreed with the client. Build cost inflation also reduced the margin on some schemes during the year.
Watkin Jones also acquired two sites and secured planning on two sites in FY23, with the potential to deliver around 590 beds. The secured PBSA development pipeline has an estimated future revenue value of c.£0.9bn (FY22: £1.0bn), of which c.£60m is currently forward sold (FY22: £130m).
With Watkin Jones facing severe headwinds with build cost inflation, higher interest rates and economic uncertainty resulting in the investment market being effectively closed for much of the year, the Group delivered a good operational performance in FY23.
With a genuine shortage of accommodation, PBSA is in demand. Economic conditions and planning challenges means less stock is being delivered, with only 12,000 new beds delivered for 2023/24.
Overall, the Group’s 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.
CEO Alex Pease and CFO Sarah Sergeant told PBSA News that the key theme that holds true is company’s adaptability and resilience. Whilst in a challenging year, Watkin Jones maintained a strong year end cash position of £72m with a low level of debt.
While Watkin Jones remains focused on the company’s core forward fund model, it will also be looking at potential opportunities to diversify its revenue streams, through development partnerships and refurbishment opportunities for institutional clients. Whilst generating revenue and margin without significant capital investment, Alex told PBSA News that they are seeing growing interest in the refurbishment of older student accommodation assets.
“We are seeing a lot more interest from investors and universities wanting and needing to upgrade their buildings to take them to the right level of quality, specification and ESG credentials.”Alex Pease, Chief Executive Officer, Watkin Jones
Watkin Jones are also determined to be well positioned to rebuild their pipeline when market conditions turn, as the company did following the global financial crisis and Covid-19 pandemic.
“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