- Further capital committed to student accommodation pipeline, despite revenue hit from leased assets
- Adjusted operating profits for 2020 in line with consensus
Student property occupancy rates may have taken a hit following the pandemic, but Watkin Jones (WJG) has continued to commit capital to the market in recent months. The development specialist boosted the number of beds in its development pipeline by almost a fifth during the six months to September.
A lower level of student occupancy for the 2020/21 academic year is expected to result in a £5m reduction in revenue for 2021. However, unlike student accommodation providers Unite (UTG) and GCP, the group does not let properties to students but earns a fixed management fee from landlords.
However, it remains to be seen whether disruption to occupancy rates will feed through to lower valuations attached to student properties. For now, asset valuations seem to be holding-up. GCP Student Living (GCP) this week reported a 3.2 per cent increase in the value of its portfolio during the year to September, or 0.7 per cent on a quarterly basis.
Watkin Jones chief executive Richard Simpson said the company viewed the pandemic as a “short-term disruption” and that beyond the next two years, long-term drivers of demand, such as the shortage of purpose-built accommodation and growing numbers applying for higher education, had not dimmed.
But while management said underlying operating profits would be in line with consensus at between £48m and £50m, house broker Peel Hunt downgraded pre-tax profit forecasts for 2021 and 2022 by 31 and 36 per cent, respectively, citing slower development progress.
While build-to-rent stands at 34 per cent of the pipeline at the end of September, management has set a target to increase that to 50 per cent over the next four to five years. Watkin Jones is less exposed to the immediate fluctuations in student occupancy rates than the likes of Unite, GCP and Empiric Student Property (ESP), although a question mark remains over how that will feed through to demand for developments in 12 months time.
With the shares trading at 2.1 times consensus forecast book value, compared with a five-year average multiple of 3.5, that risk has been more than adequately accounted for.
