40. Watkin Jones
It’s a sector of the market that is attracting more and more attention, which is why already established Watkin Jones (WJG) has rather stolen a march in the student housing sector. And that’s because it’s not actually a landlord at all, merely a conduit between the shortage of purpose built accommodation on the one hand, and the wall of institutional money looking for a decent low-risk return on the other.
The other big attraction is that it offers an end-to-end service starting with land procurement, planning, construction and asset management. All this is done for a price, and is funded by the institution, which in this case is more likely than not to be a university, thereby minimising Watkin Jones’ balance sheet risk. And it’s worth noting that for the 1.8m students in the UK there is only purpose-built accommodation to serve 550,000.
The company’s most recent transaction was the forward sale of the student accommodation element of its Christchurch Road development in Bournemouth. This comprises 454 beds and completion is due in the summer of 2017, which means that all the developments due for delivery in the year to September 2017 have now been forward sold. For the following year, 1,840 of the 3,485 due for delivery have been pre-sold, and a further 1,530 have planning consent.
There is even one development for 511 beds pre-sold for delivery in the 2020 financial year. And to enhance the property management side it bought Fresh Student Living, which specialises in the operational management of purpose-built student accommodation, just prior to Watkin Jones’ flotation in March 2016. Beds under management of 8,310 in the year to September 2016 are already contracted to rise to nearly 18,000 by 2020.
The business model has also been extended to cover residential developments, from starter homes to executive housing and apartments, and the build-to-rent sector is growing fast, offering institutions the attraction of a decent yield while owning an appreciating asset.
The first private rented sector scheme in Leeds for 322 units has been completed, and there is another 132 unit development site at Sutton. Rising interest rates may pull traditional investors back into the fixed-income market at some point, but it’s likely that such a trend is years away before interest rates outpace the return on build-to-rent. Since we tipped Watkin Jones (107p, 7 July 2016), the shares have risen by nearly 40 per cent, and we believe there is more to come. Buy. JC
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