Progressive Presents the Management Team of Watkin Jones – 13/10/2022

Watkin Jones (WJ) develops build-to-rent (BTR) and purpose-built student accommodation (PBSA) schemes, largely forward-funded by institutional investors, which acquire sites from WJ with the benefit of planning and then pay for the works monthly as development progresses, thus reducing capital tie-up for WJ. The group also provides an accommodation management service through its Fresh Property Group (FPG) business, which manages both WJ and third-party developed assets, and operates a more traditional housebuilding business focused on the North West. The company, which was founded by carpenter Huw Jones in 1791, evolved as a developer before specialising in student accommodation, and was admitted to AIM in 2016.

Panelists: CEO Richard Simpson and CFO Sarah Sergeant

Watch the full presentation below or navigate to the segments and questions that interest you the most.

Overview and Current Business Model

Talking Points - 4th October Trading Update

1. How do institutional investors price projects? Is there a ‘gearing’ effect on the price i.e. if funding assumptions go up from, say 3% to 6%, and all things are equal, in very broad terms, how much would project valuations have to fall by?

2. Given the overseas view about UK assets, is the difference in attitude between domestic and international investors, manifesting itself into anything notable at the moment?

3. You mentioned your strong balance sheet. Given the share price, which is now c20% below the IPO price back in 2016, has any thought been given to share buy backs and the criteria for that? This seems to be something that you could have a little bit of control over rather than conjecture of the general market conditions.

4. You alluded to a name change in your last interim results, but I didn’t hear anything more about that in the trading update. I wondered what the management position is on a name change now, and if now is the right time to be considering it?

5. I would have imagined Fresh (accommodation management) is a pretty high margin activity, but at last reporting when you broke out your operating profit, there was actually a loss on £7.7m of revenue. I would have thought, all else being equal in a terrible market, that it would have continued to generate great returns, but it wasn’t the case in 2021. Was there a reason for the huge £4.2m of admin expenses in that section?

6. What can you say about the dividend and intention to continue to pay it at the current level going forward?

7. Presumably you’re not alone in seeing these funding and completion challenges. Might there be opportunities to use your balance sheet to pick up distressed (but otherwise opportunistic) assets?

8. Over what time frame do your institutional investor partners view these projects? Do they block book capital in advance and allocate it into segments, or does capital flow into and out of this space relatively quickly? I’m trying to gauge how quickly things might dip, or continue to dip, and how long it might take to recover.

9. Regarding your capital market allocation, if current market sentiment prevails, how does affordable housing look going forward. i.e. with pressure on public sector real wages etc.  

10. Given that all prices are rising, how much scope is there to increase prices, for example, to student tenants?

11. What are the main hurdles to maintaining your ESG ambitions?

12. You commented that you were expecting the land market opportunity to be more active. Clearly the planning back drop in the UK is often quite confused, and not at all helped by recent pronouncements. What is your take on what this current iteration of government is about in terms of planning? Is it going to be helpful, or not?

13. Do you think the planning rules will be changed sufficiently to lower barriers to entry as far as you’re concerned, and how would this affect you?

14. You initially assessed the cladding and remedial works provision at about £40m, and you’ve already utilised some of that provision. Given the inflationary cost pressures, are you still confident that this provision is sufficient?

15. Do you always buy land using your own balance sheet money, or is some forward funded? If bought using your balance sheet cash, how do you protect margins if the property investors start asking for price reductions due to embedding a higher risk premium on their equity?

16. The lettings market appears in a much stronger position than the sales market, with upwards pressure on rental expectations. The main reason appears to be a lack of supply, so I presume your investors should benefit in two ways: very strong rents and large demand. Why are institutional investors delaying their decisions and is it just a temporary issue?

Related Content