investor meeting...2021/02/04 · robust financial performance underpins final dividend at x2 cover...

Investor Meeting

February 2021

Robust performance –

Foundations for growth

The WJ investment case

► Focused on markets with strong underlying dynamics

▪ Long term consumer demand for BtR and PBSA remains strong

▪ Resi for Rent an increasingly attractive asset class for investors

► Capital light and resilient business model

► Secured BtR and PBSA development pipeline FY21-FY25 demonstrates growth

trajectory

▪ c.£300m contractually secured revenue to come

▪ Four schemes currently under offer to sell with combined value of c.£270 million

▪ Current secured pipeline potential future revenue value of c.£1.5 billion

▪ Opportunity to grow annual deliveries to c.1500 BtR units and c.3000 PBSA beds over the next few years

▪ Current land market favourable

► Delivery supported by proven operational capability in challenging environment

► Untapped opportunities for additional growth

► A strong social purpose

1

FY20 at a glance

2020 objectives delivered:

2609 PBSA beds 159 BtR units 95 residential homes sold

20,000 beds under management

► All parts of the business adapt well to challenging operating environment

► Development pipeline enhanced

Secured pipeline of:

4466BtR units

7910PBSA beds

Planning granted for first Co-Living

scheme

► Continued focus on safety and doing the right thing as pandemic evolves

Sustained commitment to wellbeing of our people and tenants

► Robust financial performance underpins final dividend at x2 cover

Revenue£354 million

Adjusted operating profit£51.7 million

Net cash£94.8 million

EPS

14.7 pence

► Business model intact and key growth drivers enhanced

Partnershipagreement

Cranfield University

2

The WJ Business Model

► Markets with favourable underlying dynamics

3

► Predictable sources of income

▪ BtR and PBSA pipeline; Fresh management services; Homes business

4


► A unique combination of capabilities

▪ Investment expertise; expertise in delivering; customer insight; capital light; ESG

focus

5


Residential for rent sector resilient

► Despite Covid-19 disruption, residential continues to grow and outperform other

real estate sectors

▪ Estimated residential investment up by over c.8% year on year*

▪ Estimated commercial sector investment down by 30%**

► 75% of investors intend to increase exposure over next year (2019: 63%)*

► Resi for Rent an increasingly recognised asset class

▪ Long term dynamics of PBSA market intact

▪ Pandemic a catalyst for BtR

* Source: IPF

** Source: JLL

5.8%6.6%

7.1% 6.8%6.0%

7.2%7.8% 8.1% 8.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

0

3,000

6,000

9,000

12,000

15,000

2012 2013 2014 2015 2016 2017 2018 2019 2020

UK Residential Assets (LHS) Proportion of UK RE Assets (RHS)Source: IPF

Residential Assets under Management 2012-2020

6

Increasing consumer demand for BtR

► Quality, convenience and flexibility making BtR an increasingly mainstream choice for a

widening demographic

▪ No longer an exclusively young professional proposition▪ No longer limited to city centre locations ▪ Pandemic has highlighted benefits of institutional ownership versus traditional private rental sector▪ High occupancy and low arrears demonstrate appeal

► Shift to BtR a long-term trend

▪ UK’s BtR pipeline up 20% year on year▪ Market forecast to grow to 1.7 million units versus existing supply/pipeline of c.172,000*

► Advantages amplified by Covid-19

▪ Flexibility and convenience amid uncertainty▪ Good home working facilities combined with a sense of community▪ Increased regulatory protection for renters, further extended through pandemic▪ Tightening credit conditions for mortgage seekers * Source: Savills

Ratings

comparison 2019/2020 lockdown (lockdown data 26

March to 30 June

2020)

Star Rating Design Location Value ManagementFacilities

BtR –

Developments

Tenant Score

BTS –

Developments

Tenant ScoreSource: HomeViews

2019

2020 Lockdown

7

Investment in BtR at record levels

► BtR Investment in Q3 2020 grows to record

£1.43 billion*

▪ 35% from investors new to sector in 2019-20*

▪ Now a market leading asset class

► Total estimated 2020 investment of c.£4 billion,

up 50% on 2019**

▪ Projected total market value of £146 billion by 2025**

► Pricing underpinned by income security

▪ Operators reporting sustained rental growth throughout pandemic***

▪ Occupancy and collection rates, both estimated at over 95%****

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

April May June July August

Monthly rent collection

Institutionally-owned PRS

Source: Knight Frank

► Resilience reinforced by historic performance in more mature US market during 2001 and

2009 downturns

▪ Defensive qualities increasingly recognised * Source: CBRE

** Source: Frank Knight

*** Source: Grainger plc

**** Source: Savills8

Long-term demand for PBSA robust

► Student numbers forecast to rise by c.300,000 by

2030*

▪ Rising participation rate underpins continued

demand for HE (Higher Education) from UK students

➢ Appeal of HE strong despite Covid-19: only 5% of 2020 cohort regret going to university*

▪ Sustained demand from international students

➢ UK HE reputation and growing global middle class

➢ Despite Covid-19, September 2020 enrolments of ex-EU international students up 9% to a record 44,300 (applications: 89,000)

➢ UK government target of 600,000 international students by 2030

► Enduring appeal of residential model

▪ 92% of students value the independence of living away from home**

► Continued focus on value

▪ Price differential between HMO (House in Multiple Occupation) and PBSA narrowing* Source: HEPI

** Source: Unite Students

*** Source: Frank Knight

0%

20%

40%

60%

80%

100%

Demand Supply

PBSA Supply v Demand

Core Opportunity Live at home

Source JLL/HESA

9

£0

£1

£2

£3

£4

£5

£6

£7

£8

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

£’bn

Actual Forecast Long term avg.

UK PBSA Investment

Source: JLL

Long term PBSA market dynamics strong

► Despite upheaval, c.£6 billion of

PBSA investments in 2020

▪ Blackstone-iQ transaction:

£4.66 billion*

▪ 1% rental growth**

▪ Yields stable

* Source: JLL

**Source: CBRE

► Long term market dynamics remain attractive

▪ Strong demand for UK HE from UK and international students

▪ Student & Higher Education Institutions (HEIs) perceptions of PBSA have

improved through the pandemic v traditional PRS/HMOs

▪ Existing demand-supply imbalance set to widen

▪ Universities’ existing estate is ageing and undermining their student proposition

10

Development pipeline – BtR & PBSA

11

► Secured pipeline FY21-25 deepened during H2 FY20:

▪ BtR – c.4700 units (c.2500 1H 20)▪ PBSA – c.9900 beds (c.4600 1H 20)

► BtR represents 2/3 of secured pipeline on a built out sq.ft basis

► Investors increasingly targeting Resi for Rent sector – BtR & PBSA

► Forward funding is principal mechanism to invest

► WJ is recognised market leader and well placed

► Land price reduced by c.5% YOY

► Build costs +3% YOY in line with underwrite – (Labour flat off-set by Covid-19 disruption costs and materials +ive)

► Asset values across the sector have been stable

Total FY21 FY22 FY23 FY24 FY25 Total FY21 FY22 FY23 FY24 FY25

Total pipeline 4,713 857 255 538 1,364 1,699 9,908 3,192 1,945 3,100 905 766

Forward sold 928 857 71 - - - 3,898 2,730 1,168 - - -

Sales in negotiation 722 - 184 538 - - 714 462 - 252 - -

Secured with planning - - - - - - 1,117 - 777 340 - -

Secured subject to

planning2,816 - - - 1,117 1,699 2,181 - - 1,846 335 -

Site acquisitions in legals 247 - - - 247 - 1,998 - - 662 570 766

BtR (units)

PBSA (beds)BtR PBSA

Development pipeline – growth opportunity

12

► Overall growth opportunity still firmly there

► Covid-19 disruption has pushed out the growth of the development pipeline by about

a year and especially impacted FY22 deliveries (as previously stated)

► Investor appetite in BtR is evolving well. Creates opportunity for 1500+ units FY25+.

► PBSA appetite exists today and will recover strongly post Covid-19

► Into the medium to longer term there is growth opportunity for both areas

(5)

5

15

25

35

45

55

65

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47

£'s m

illio

n

Period - months

Cumulative margin Cumulative revenue Cumulative margin Cumulative net cash

FY1 FY2 FY3 FY4

Revenue £11mLand £11mDev £0m

Revenue £25mLand £11.0mDev £14m



Gross profit£Nil

Gross profit£2.62m

Gross profit£8.25m

Gross profit£6.75m

Final payment £4.4m

Final payment£4.4m

WJ Model – Revenue profile BtR

▪ Example based on forward sold 250 apartment scheme at £220,000 per apartment

▪ Value to WJ £55.0 million: Land 20% - £11.0 million; Development works - £44.0 million

▪ Gross margin – 15.0%: Land - 0%; Development works - 18.75%

▪ Final payment received on completion c.10% development works value - £4.4 million

▪ Lead in period 12 months; Build period 30 months

13

Delivering & Measuring growth - BtR

► Secured pipeline gives visibility of

revenue growth

► Table shows KPIs for monitoring

progress

► Future embedded revenue value

c.£900m

► BtR target margins – 15.0%

► Margin recognition:

▪ Land Sale- Nil to 10.0%

▪ Development phase - c.16.0% to

19.0%

14

0

50

100

150

200

250

300

350

400

FY19 FY20 FY21 FY22 FY23

£’m

Illustrative Revenue

Revenue delivered 100% 100% 20% 0% 0%

Forward sold 100% 100% 58% 2% 0%

Planning secured 100% 100% 86% 31% 15%

Sites secured / in legals 100% 100% 100% 100% 94%

0%

20%

40%

60%

80%

100%


Revenue delivered Forward sold Sales in negotiation

Secured requiring planning Sites in legals Sites to acquire

Delivering & Measuring growth - PBSA

► Future embedded revenue value

c.£600m

► PBSA target margins – 20.0%

► Margin recognition:

▪ Land - Nil to10.0%

▪ Development phase - c.22.5%

to 25.0%

▪ These KPIs will be set out by

management in the future in this

form to help track progress

15

0

50

100

150

200

250

300

350

400


£’m

Illustrative Revenue

Revenue delivered 100% 100% 17% 0% 0%

Forward sold 100% 100% 59% 16% 0%

Planning secured 100% 100% 91% 36% 11%

Sites secured / in legals 100% 100% 100% 85% 71%

0%

20%

40%

60%

80%

100%


Revenue delivered Forward sold Sales in negotiation Secured with planning

Secured requiring planning Sites in legals Sites to acquire

Fresh - building foundations for future growth

16

Across

66 buildings

Over

20,000 students &

BtR tenants

4th largest PBSA

operator in UK

(6th in 2019) (according to CBRE)

Operational capability,

combined with reputation

and growing popularity of BtR

provides growth opportunity

1,700 beds/units

pipeline secured to

come in line by

FY23

Proactive

Covid-19 response

has enhanced

reputation

Foundations for

future growth in

place

Consumer

Insight

driven business

Commitment to ESG

► An established track record

▪ 95% of waste diverted from landfill

▪ All developments BREEAM very good or excellent

▪ Health and safety incidents down c.16% versus 2019

▪ Pro-active response to cladding and updated fire safety

▪ Bespoke welfare, D&I and employee engagement programmes

▪ Supported furloughed employees to 80% of full pay and repaid government financial assistance received

► Delivery of new ESG framework a key focus

▪ Based on UN sustainable development goals

▪ Supported by integrated dashboard of performance metrics

▪ 2021 objectives in place

► Enhanced governance and regulatory reporting

► Aligned with our purpose and strategy

▪ Our future places, planet & people

17

Summary

► Long term dynamics of the Resi for Rent sector are favourable

► Forward sold position provides visibility of earnings through Covid-19

► Deepened pipeline provides visibility of future growth trajectory and measurables

to track progress

► Opportunity to grow Fresh and harness its insight

► Affordable Homes an untapped opportunity

▪ Aligned with a proven business model

► Focus on modernising the company

▪ Operational efficiency

▪ Customer-led culture

▪ Commitment to ESG

► FY20 dividend demonstrates confidence in operational and financial resilience

18

Appendix

WJ Model – Revenue profile PBSA

20

▪ Example based on forward sold 350 bed scheme at £100,000 per bed

▪ Value to WJ £35.0 million: Land 20% - £7.0 million; Development works - £28.0 million

▪ Gross margin – 20.0%: Land - 0%; Development works – 25.0%

▪ Final payment received on completion c.10% development works value - £2.8 million

▪ Lead in period 12 months; Build period 24 months

-£5

£0

£5

£10

£15

£20

£25

£30

£35

£40

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

£'s m

illio

n

Months

Cumulative receipts Cumulative net cash Cumulative revenue Cumulative margin

FY1 FY2 FY3


Gross profit £ Nil

Gross profit£3.5m


Gross profit£7m


Final payment£2.8m

Final payment£2.8m

▪ Solid financial performance, proving

resilience of business model

▪ Revenues down 5.5% due to delay in

new forward sales

▪ Gross margin robust at 21.4%,

unchanged from FY19

▪ Overheads held at FY19 level of £24.0m

▪ Operating profit reduced 7.1% due to

lower revenues

▪ EPS reduced by 8.7% to 14.7 pps

▪ Exceptional costs of £20.5m, including

£14.8m for cladding and £5.7m for

Covid-19 related items

Underlying Results

£million

FY20 FY19

(restated 1)

Movement

Revenue 354.1 374.8 -5.5%

Gross profit 75.9 80.0 -5.1%

Operating profit 2 51.7 55.6 -7.1%

Profit before tax 2 45.8 50.4 -9.3%

EBITDA 2 61.3 65.0 -5.8%

Basic EPS 2 14.7 pence 16.1 pence -8.7%

ROE 2 22.9% 27.3%

Notes

1. The FY19 results have been restated to account for IFRS16

- Leases, which applies to the Group for the first time for

FY20.2. These measures exclude exceptional items.

FY20 financial highlights - earnings

21

• Cash increased £18.8m to £134.5m

• Working capital broadly unchanged at

£84.4m (FY19: £87.1m)

• Inventory and WIP reduced £8.5m

➢ Residential sales

➢ Pipeline investment mostly subject

to planning deals

• Provisions - future cladding cost

• Operating leases capitalised on

adoption of IFRS16 effective for FY20

➢ Primarily 6 historic PBSA leases

➢ Leased assets - £109.0m

➢ Lease liabilities - £134.0m

➢ Adjust to opening reserves - £15.0m

FY20 financial highlights – financial position

£’million FY20 FY19

(restated 1)Leased assets 109.4 116.2

Other non-current assets 25.3 26.5

Total non-current assets 134.7 142.7

Inventory and WIP 125.7 134.2

Receivables 65.0 39.4

Cash 134.5 115.7

Current assets 325.2 289.3

Total assets 459.9 432.0

Trade and contract liabilities 106.3 86.5

Provisions 9.9 -

Current and deferred tax 1.8 8.1

Borrowings 39.7 38.8

Lease liabilities 134.4 137.5

Total liabilities 292.1 270.9

Net assets 167.8 161.1

Notes

1. The FY19 results have been restated to account for IFRS 1622

Cash flow

• Resilient cash performance

• £63.5m cash from trading, before finance,

tax and cash cost of exceptional items

(FY19: £39.4m)

Liquidity

• Strong liquidity position, with gross cash of

£134.5m and available facilities of £75.0m,

totalling £209.5m

• Government furlough assistance of £0.8m

repaid at the start of FY21

• Strength of financial position supports

investment in growth of development

pipeline

• Full year dividend of 7.35 PPS proposed

£’million FY20 FY19

(restated 1)

Movement

Operating cash

inflow

38.3 23.5 +63.0%

Gross cash 134.5 115.7 +16.3%

Borrowings -39.7 -38.9 +2.1%

Net cash 1 94.8 76.8 +23.4%

RCF headroom 65.0 27.9

Overdraft facility 10.0 10.0

Available liquidity 209.5 153.6 +36.3%

Dividend per share 7.35 pence 8.35 pence -12.0%

Notes

1. Net cash is stated before deducting IFRS16 lease liabilities

FY20 financial highlights - cash flow/ liquidity

23

FY20 Revenues

FY19 Revenues

Segmental review - Revenues

PBSA, £226.0m (64%)

BtR, £94.0m (27%)

Residential, £26.3m (7%)

Accommodation mgmt, £7.6m (2%)

PBSA, £246.1m (65%)

BtR, £77.4m (21%)

Residential, £34.3m (9%)

Accommodation mgmt, £7.5m (2%)

Commercial, £9.5m (3%)

BtR• Growing contribution from BtR• 21.4% increase in revenues to £94.0m• Good progress with 4 developments in build for

delivery in FY21 and Bournemouth completed

PBSA• 8.2% decrease in revenues to £226.0m• Reflects delay in forward sale of new schemes

Accommodation management (Fresh)• Revenues broadly unchanged at £7.6m, whilst

units under management increased by 2,300 to 17,721 at the start of FY20

• Management fees largely fixed, but with modest level of variable income based on occupancy,

reducing revenues in the disrupted summer term

Residential• 23.3% decrease in revenues to £26.3m• 95 sales achieved (FY19: 150)• Sales impacted by Covid-19 lockdown in critical

spring period

• Good pick-up in sales in the summer months• 25 sales exchanged or reserved going into FY21

and a further 21 sales since the start of the year

24

FY20 Gross Profit

FY19 Gross Profit

Segmental review – Gross Profit

PBSA, £54.3m (70%)GM 24.0%

BtR, £14.9m (19%)GM 15.8%

Residential, £4.0m (5%)GM 15.4%

Accommodation mgmt, £4.5m (6%)GM 59.8%

PBSA, £54.9m (68%)GM 22.3%

BtR, £13.8m (17%)GM 17.8%

Residential, £7.2m (9%)GM 20.8%

Accommodation mgmt, £4.6m (6%)GM 61.5%

BtR• Gross margin of 15.8%, broadly in line with

previous guidance of 15%

PBSA• Strong gross margin of 24.0% and above FY19

margin of 22.3%• Reflects the delay in new forward sales of land,

which are typically at lower margin than the subsequent development works

Accommodation management (Fresh)• Gross margin of 59.8%, in line with target of 60.0%• Slightly reduced on prior year due to lower level

of variable fee income

Residential• Gross margin of 15.4%, down from 20.9% in FY19• Reflects sales mix and contribution from higher

margin sales in Stratford in FY19

25

300,000 homes

needed p/a in UK

Long term, stable

granular income

stream

Significant

Undersupply -

Demand for 145,000

affordable units pa vs

av. delivery of 46,000

pa since 2013

Government

rhetoric & policy

supportive driving

focus & funding

Traditional Registered

Providers (RPs) diversifying

activity & funding

– New opportunities for

Private sector to partner

and participate

New private and

institutional capital

entrants to affordable

housing investment

Homes England - £12.2 bn

Grant funding to support

180,000 homes over 5

years

ESG Credentials -

Growing Customer,

Investor & Shareholder

focus on genuine ESG

performance

► Affordable housing sector provides opportunity to re-focus and grow

Residential division

▪ A fast-growing asset class

26

ESG Opportunity – Affordable homes pilot

ESG Opportunity – Affordable homes pilot

► Align Homes business with WJ’s

successful BtR and PBSA Resi for Rent

model

▪ Low cost affordable-led single family

housing

▪ Forward sold to institutional investors

▪ Capital light

► Private sale component to underpin

margins

▪ Currently targeting c.15% PoC

► Expression of WJ’s wider commitment to positive social impact

► Pilot focused in North West with opportunities to expand nationally

► A significant long-term growth opportunity subject to success of pilot – further

update in due course

27

investor meeting...2021/02/04 · robust financial performance underpins final dividend at x2 cover...

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