Watkin Jones Plc (WJG) Earnings Call Transcript & Summary

Hello, and welcome to the Watkin Jones Plc interim results presentation. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I'm pleased and Richard Simpson, Chief Executive Officer. Please go ahead with your meeting.

Good morning, and welcome to the interim results for Walking Jones. I'm pleased to be presenting a strong set of results today, although sadly not in person as we would have preferred, but in light of the risk profile of COVID-19, hosting the interims on a conference call is the responsible approach. And thank you for your flexibility in accommodating this. Myself and Phil Byrom, the CFO, will run through the presentation, which is available on the WJ Results Center on our IR website. And at the end, we will open up to questions, and this will be coordinated by our call host. So turning to Slide 2. Let's look at the agenda. We're going to cover the highlights and overview. We then will have a look at the HY '20 performance. And we'll turn to the WJ response to COVID-19. And then there's a few segments, which, I think, are worthy of a closer look. So we'll then have a look at the cladding works, which have already been announced. We'll have a look at ESG, a responsible business for Watkin Jones. And then sort of initial sort of glimmers of light with some post-COVID growth and our first university on-campus development partnership with Cranfield University. Prior to me then summarizing, and as I've said already, we'll then invite our call host to field and marshall any questions. So turning to Slide 4. This is the first of 2 slides on highlights and overview. Clearly, there's a range to cover here. But essentially, a good performance in the first half, building on our multiyear targets through acquisitions, planning permissions, forward sales and construction progress, all points to a capable end-to-end platform in the structural growth sector of residential for rent. Of course, COVID-19 is here and is disrupting operations and the sector. However, the business model is well positioned to navigate the pandemic and the fallout, and as market leader succeed into the other side. For now, the impact is not quantifiable. And hence, we've adopted a cautious conservative approach. And this is being built on a first response plan. And around this first response plan, we have 2 pillars. The first is health and safety, utmost; and the second has been cash conservation, so hence, the temporary suspension of the dividends and the withdrawal of guidance. But we do recognize the importance of the dividend to shareholders, and we are committed to reinstating it at the appropriate time. And WJ is a responsible business and has put employees, tenants, clients and our supply chain first throughout. So turning to Slide 5, and this is continuing with the highlights and overview. The business model and the balance sheet are robust and resilient and is designed to be fit through the cycle. Hence, the forward sale of assets to institutional purchases gives visibility of revenue means we have net cash. The sector of residential for rent is -- has structural growth, and this will continue to attract institutional purchases for our assets, especially as we are the market leader. The business is operational with construction despite a brief pause in activity in late March, early April, and we are making good progress on site with our 2020 completions. The key drivers for the full year performance are 3. The first is progress with our 2020 deliveries. The second is maintaining good progress with our 2021 completions. And then the third element is the forward sale activity in H2, financial H2. Residential for rent remain highly attractive sectors for institutional investors. If we turn initially to student accommodation, it is experiencing short-term disruption, which is a practical outturn to the pandemic, and this will have an impact on the academic year that we're currently in as well as the next academic year 2020 to 2021. But I think further than that, there's no material change to the positive medium- to longer-term outlook, especially for the top U.K. higher education institutions, which Watkin Jones focuses on delivering student accommodation to. Turning to build to rent. Build to rent could really come of age through this. Its performance currently is very resilient. I think there is real potential for consumer shift to the flexible rentals in city center locations with management on hand to provide that safe and secure environment. Build-to-rent product can even accommodate work boast for high-quality work from home experience, which may well be more in demand as we go forward. As a package, therefore, build to rent offers flexible tenant fees, removes the commune, which is considered higher risk of infection, provides a safer environment because of that management service, such as the cleaning and security, and as I've just mentioned, can provide the home working. So as such, whilst there is disruption, WJ are very well placed to weather this pandemic and emerge stronger the other side. In the short term, we expect to deepen our development pipeline with attractive land acquisitions, which is entirely what our business is set up to focus on. So turning to Slide 6, and we will look at the financial highlights for the half year. We can see a strong H1 performance, which was largely pre-COVID. Solid performance across all areas. Revenues up just under 17%, with an increased contribution from build to rent. Gross margin robust at just under 23%, profit before tax growth of just under 6.5% and then EPS growth of just over 8.5%. We also have resilient liquidity and the balance sheet has been reinforced further, with our gross cash position of GBP 72.4 million, and then our very recently renewed and enlarged 5-year revolving credit facility, extended up to GBP 100 million with currently GBP 71 million undrawn headroom there. So if we turn to Slide 7, and if we look at the half year highlights, good performance across the entire business. We saw a forward sale of the 348 PBSA student accommodation scheme in Bristol. Forward sale of 100 additional beds on the Kelaty, Wembley scheme in London. Two build to rent acquisitions in -- 1 in Birmingham and 1 in Bath, which combines, subject to planning, could deliver just under 900 apartments and 2 student accommodation schemes, 1 in Bristol, 1 in Bath, again, subject to planning, could deliver just under 600 student bed spaces. This brings the BtR pipeline to 2,600 apartments. That's the secured pipeline across 10 schemes, 5 of which have been forward sold, which is 1,000 apartments, and the PBSA-secured pipeline is brought up to 7,200 bed spaces across 19 schemes, 13 of those schemes have been forward sold, which grows up to 5,600 bed spaces. So overall, the story of the first half was certainly delivering well against growth plans. So if we now turn to Slide 8, and I'm going to hand you over to Phil for a deeper dive into the half year numbers.

Thank you, Richard, and good morning, everyone. I will now take a look at our revenue and gross profit performance in a little more detail. Richard mentioned that we had a strong first half with revenues increased overall by 16.7% to GBP 185.7 million. And we made good progress across all our business segments. On Slide 9, you can see the revenue contribution from those business segments. And I think a particular note is the growth in the contribution from build to rent, with revenue from build to rent increasing by GBP 27.8 million to GBP 36.5 million. And that reflects the revenues that we earned during the period from the 4 forward-sold developments, which we currently have in delivery for FY '20 and FY '21. With regard to got student accommodation [indiscernible] modest decrease in revenues over the period of about GBP 8 million to just over GBP 120 million. And that simply reflects the lower number of beds that we had in delivery for FY '20 compared to FY '19. Accommodation management continues to perform well. Revenues increased for that segment to GBP 4.1 million. And we have continued success in winning new contracts with an increase of 3,000 units under management at the start of FY '20 compared to a year earlier. For the residential segment, revenues increased by GBP 6.9 million to GBP 24.3 million, and we have 38 sales completions in the first half. And importantly, completed forward so development of 35 apartments at Trafford Street in Chester. We also had good progress under the development agreement for delivery in FY '21 of 75 apartments at Marshgate in Stratford. Turning to Slide 10. We certainly look at the gross profit contribution from the segments. And again, here, we can see the similar position with that increasing contribution from build to rent. The gross margin that we achieved on build to rent was 16.3%, broadly in line with previous guidance that we've indicative of 15% for that business for the current time. Student accommodation gross margin remained robust at 24.1%. And that continues to reflect the quality locations of the developments that we have in build. For accommodation management, again, gross margin maintained here about 60%, at 61.9% for the period and broadly in line with the prior half year. The residential business also performed well with the gross margin improving to 18.2% from 16.7% in the first half of 2019, and that really reflects the margin contribution from the residential apartment sales that we achieved at Stratford and Bath. Turning to Slide 11 and just to discuss here the impact of IFRS 16 leases, which is applicable to Watkin Jones for the first time for the FY '20 financial year. It's particularly relevant to the group due to the 6 historic PBSA sale and leaseback properties that we have. And because of the material impact on the results and our statement of financial position, we have restated the comparative period numbers in order to provide comparability. In terms of the statement of financial position, the standard results in the recognition of the right of use asset of GBP 127 million and a corresponding lease liability of just over GBP 145 million as of the 31st of March 2020. 2 historically profitable long-term student accommodation leases account for GBP 83 million of this liability. Retained earnings effective September 2019 have been reduced by GBP 14.3 million due to the difference between the liability and the right-of-use assets, net of tax. In terms of earnings, our H1 '20 operating lease costs were reduced by GBP 5.6 million. Depreciation increased by GBP 4.2 million, and finance costs have been increased by GBP 2.2 million. As a consequence PBT for the first half was reduced by GBP 0.8 million, and EBITDA increased by GBP 5.6 million as a result of the adoption of the new standard. And with that I would like to hand back to Richard.

Thank you, Phil. I'm going to invite you now to turn to Slide 12, where I'm going to look at the WJ respond to COVID-19 so far. As I mentioned upfront, our first response was built on 2 pillars. First, being health and safety, and then the second being cash conservation and balance sheet protection. So turning to Slide 13 to review the first pillar of health and safety. Watkin Jones has followed Public Health England and WHO guidance. We implemented enhanced health and safety procedures for employees, tenants, clients and supply chain. And if we look at construction sites, we temporarily closed construction sites in late March, early April, whilst detailed bespoke risk assessments were carried out. We then remobilized gradually with a number of enhanced safety features. We introduced additional PPE and hold 1 month deploy on all sites, heightened screening and site admittance procedures, which include the use of digital thermometers and personal declarations. We introduced detailed protocol on deep cleaning and situation management in event of confirmed infections. And we rezoned and repurposed welfare facilities and other accommodation for social differencing. We resequenced programs, construction programs and change construction procedures for enhanced health and safety requirements following detailed discussions with supply chain. Now looking at offices, we moved to remote working, and this covered the entire business, except for construction and the on-site fresh property management activities. Remote working has performed well to date. Business continuity and digital systems are working well, and really pleased with the good engagement and energy from those working remotely to keep the business moving forward positively. So turning to Fresh. Fresh, as you know, manage 18,000 tenants across 65 residences in the U.K. and Ireland. All schemes have remained operational. Universities, by and large, closed on or around the time of lockdown. And at this stage, circa 50% of students left their term time residences. BtR occupancy remained robust with no discernible drop-off at this time. We have enhanced health and safety protocols implemented for tenants and employees as well as supply chain and Fresh's digital app was used for comms and the liaison with tenants as well as information of change in safe practice guidelines. Employees move to a shift system and to a lighter resourcing model to help with social distancing. And again, PPEs issued and all sites hold 1 month supply. Regulatory testing of the buildings of essential life systems have all been maintained satisfactorily during this period. So turning to well-being. There were clear potential well-being challenges posed. These are for those who are traveling to a place of work and then working in proximity to colleagues and others with the associated heightened risk profile, and this clearly applies to construction and fresh operation teams. But it's also a factor for those working remotely. This has led to the creation of the keeping-in-touch program, the KIT program, which involved regular comms, interactions on Microsoft Teams, use of Jama for real-time updates and various socials and charity events such as an NHS fundraiser held last Thursday. The business has been providing appropriate support for employees who've been struggling, all designed to maintain the sense of community and support to help reinsure our team. Turning to site remobilization. Since early April, our construction sites have been steadily increasing their operational activity in England, Wales and Northern Ireland. Resource levels were at 75% versus pre-COVID levels. Our 2 projects in Scotland are still temporarily closed at the general guidance from the Scottish government and indications are that this situation may change as early as this week, and we are monitoring accordingly. If you turn to Slide 14, we look at the second pillar of the first response, which was cash conservation and balance sheet protection. Firstly, the business model is resilient with our forward sold and net cash position. We are net cash generative today, for example. We have taken a cautious and conservative position because of the unquantified impact of COVID-19, especially with regard to the potential to disrupt construction development activity in progress. We are very closely managing all discretionary investments, use of cash across the full spectrum from general running of the business to investments in new sites and new construction start on sites. Whilst we paused activity in construction in early April, we accessed the government furlough scheme, and at its peak, 43% of employees were enrolled. However, with remobilization, this number has decreased proportionately. Alongside this, at this time, the Board and senior executives took a temporary 20% reduction in salary and postponed annual pay increases. Acting responsibly here has extended to our students who left term time residences, which are directly under Watkin Jones' control. For those students who left pre lock down who resided in 1 of our 8 right-of-use assets, which Phil has just been referring to under our sale and leasebacks, we have waived their rent for this period. We have also provided accommodation for those who experienced further disruption with on the travel plans after lockdown is lifted and need to stay longer. The cost of the group is expected to be circa GBP 1 million. So turning to Slide 15, and I'll hand over to Phil , again, who will review the COVID-19 financial analysis.

Thank you, Richard. Yes, [indiscernible] in relation to the current position and some financial analysis around that. We have a robust business model, and we are in a financially resilient position on entering the current period of uncertainty. With regard to our liquidity, we have GBP 72.4 million of gross cash at the 30th of March 2020. And as Richard referred to, we have renewed the revolving credit facility with HSBC for a further 5 years to May 2025, an increase of facility limit from GBP 60 million to GBP 100 million. Currently, we have GBP 71 million of headroom on that facility. We also have an unutilized overdraft facility of GBP 10 million available to us. In terms of our forward sold pipeline, this, as you referred to, provides value to come for the business of FY '20 and '21 of GBP 390 million. And this provides visibility on our monthly cash income development progress and the significant final payments we should do on completion of the schemes, which are typically 10% of the development value. That position, combined with the careful cash conservation measures which we have implemented gives us a resilient position as we go forward from this point. And we have kept that resilience through cash forecasting looking at lockdown periods varying length of up to 12 months to prove our cash position and resilience over that period concerned. Currently, with circa 75% mobilization on our side, our cash position is monthly generative. On the graph on the right-hand side of Slide 15 gives an indication there of how that currently worked through. We generate at the moment about GBP 2 million of cash income monthly, and we have expenditure going out against that on our overhead rental cost on the PBSA sale and lease matchup that we referred to and currently with 50% student rental income generated from those that gives the cash cost of the business of about GBP 400,000 a month. Finance costs then also to take into account leave us to the net cash flow flows each month as we go forward. Importantly, those cash income figures that we referred to there don't include final payments, which are due on completion of the development is concerned. Should we have a full lockdown situation again with no income at all coming into the business, that would result in monthly cash burn of about GBP 2.5 million per month. With our liquidity position, therefore, puts us in a strong position to trade through a worst-case lockdown scenario in the future. Thanks, Richard.

Thanks, Phil. And so turning to Slide 16, which is titled pipeline and COVID-19 disruption. This slide covers some important elements, and I will cover 6 areas in particular. The first one is the forward sold position. Second is the secured pipeline, i.e., the wave behind the forward solds. The third point is about our expectations to make good on land acquisitions. The fourth is on-site construction progress. The fifth are some full year performance variables to consider. And then the sixth is to use some insights, some real-time insights from Fresh to cast a light on demand in the student accommodation and the build-to-rent sectors at the moment. So taking all of those in turn, firstly, we have a good forward sold to contractually secure earnings visibility for 2020 and 2021, arising from the forward sold position. And as Phil has mentioned, revenue to come is GBP 390 million. All of our 2020 pipeline is forward sold, and all but 1 of our 2021 pipeline is forward sold as well. Our forward sold clients are financially strong institutions, and this visibility of earnings significantly helps smooth the disruption of COVID-19. Secondly, we then have our further secured pipeline across BtR and PBSA. Maybe worth noting that BtR is a larger component part of that pipeline. And yes, there are some planning consents to be secured. Clearly, they need to be forward sold. There needs to be a commercial negotiation on pricing, et cetera. So there's a lot to do still with that pipeline. But on an illustrative forward-sold development value basis, that pipeline, on a pre-COVID valuation, was set at about GBP 690 million. And this can be generated assuming the development life cycle flows in the way I've just flagged the risks on it. This can be generated for 2022 and beyond completion dates. Thirdly, and clearly, as a developer and a strong financial position in the structural growth sector of residential for rent, we would expect to deepen our pipeline at this time, whilst the land market is particularly attractive to us. And then fourthly, thinking about the construction update. So as we've been talking about, our 2020 and 2021 construction sites were operational on-site at 75%, with the exception of the 2 projects in Scotland, which were aimed at 2021 practical completions, where there will be extensions if time granted. So focusing on this year, of the 7 student projects finishing this year, 6 are still targeted for Q3 delivery and 1 is targeted for Q4. We are in discussions with the purchase of about a phased handover or part of that scheme earlier, which will mitigate potential disruption, but nothing is yet concluded on that. We are anticipating modest cost increases to complete these projects. And I guess this is a fairly self-explanatory combination of acceleration costs to mitigate the disruption. Just the fact that carrying on construction in this disrupted world is more expensive and then potentially some late penalty payments, too. But I stress, at the moment, our guidance is on modest increase in cost to complete. The supply chain is working well and it's, I think, a real testament and sign of our long-lasting partnership with our supply chain build up in many examples over quality decade worth of working together. I think that's really helped with our ability to remobilize and remobilize effectively, which puts us in a good position. So a few comments on the full year performance. And this will be largely dependent on 3 aspects. The first 1 is continued good progress with our near deliveries, continued good progress with our 2021 deliveries, and then our forward sale activity, which we may undertake in H2. I've covered the first 2. So with regards to the forward sales, we are in a very strong financial position and will only, therefore, make good on disposals, where we can see the long-term value of the assets being appreciated. We do expect the investment market for forward purchases to continue to strengthen over the next few months, and therefore, through short-term sales are not a priority for us. My final point on this slide, which I flagged was some Fresh property management insights on the sectors. I think these are quite interesting. Just to remind you, Fresh look after 18,000 tenants across student combination and BtR. So turning to BtR. So far, this sector is proving resilient. Occupancy is holding up well at circa 92%, which is in line with occupancy that we saw pre-disruption. And bad debt is currently in line, again, with pre-COVID levels at just over 1%. Interestingly, since the lockdown on [indiscernible] activity was lifted last week, there's been a 30% increase in inquiries to Fresh through the web page and direct digital marketing and sales channels. And then turning to student accommodation, we are seeing disruption for this academic year as we just touched on with the waiving of rent for students who left their turn time residences just prior to lockdown. And we expect to see that disruption continue into the next academic year. And I think the occupancy for the next academic year will largely come down to the health and safety situation closer to the time the academic year is due to start with regards to resurgence or otherwise of the pandemic and any government restrictions on movement or impact on being able to study on campus. But I think what we can say for now is that reservations to date through Fresh are currently at 60%, and this compares to this time last year, which were at 64%. And so it clearly demonstrates that whilst reservations are lower, they are still actually quite resilient. Another example would be, last week, 169 bookings were taken on the student accommodation reservations for the next academic year, and that compares to the same week last year of 272. And we have seen Fresh website traffic increased by 29% since April. So I think a lot of potential students are adopting a wait-and-see approach at the moment. And as I say, will very much depend on the situation on the ground closer to the start of the academic year. Interestingly, there's been a few pointers from UCAS. And UCAS, Universities and Colleges Admissions Service. They have said that international applications are up year-to-date versus last year. They also flagged that EU applications are down because of Brexit. But nonetheless, the overall point of our international applications are up year-to-date versus last year. And we are currently seeing some good demand for the strongest universities, which, I think, comes under the umbrella of the flight-to-quality point. And these are the university markets, which Watkin Jones develops in and of course, will be the most resilient. So turning to Slide 18, and this is the review of high-rise cladding. So WJ has been proactive here to partner with asset owners on 8 buildings, which Watkin Jones have historically developed to change and/or remediate cladding in order to ensure the buildings are safe for tenants. And this has come in response to government guidelines published in January this year. Watkin Jones is not accepting liability, but it's doing the responsible thing to resolve the problem. And costs are anticipated to be between GBP 12 million and GBP 15 million incurred over the next 2 to 3 years and will likely be provided up to full year. We will look to the supply chain to recover costs, which, if successful, would reduce the provision. So turning to Slide 20, we can see the ESG section and this work brings together the existing initiatives, which exist throughout the company, and this sets out how or Watkin Jones, as a responsible business, is creating the future of living. We set up a responsible business working group, which will set objectives, targets and measurables, with the intention to announce the sustainability strategy at the full year. Turning to Slide 21, shows a little more color on some of these with the environmental focus on greener buildings and methods of construction [indiscernible] social responsibility for employees and communities and the governance framework is core to the structure of the company. And of course, there are many recent examples, quite a few we've covered today on this call. These are perhaps the approach to cladding, the student tenancy release, the well-being areas through KIT, the keeping in touch program, and the heightened health and safety responsibilities that we've seen through this pandemic. So turning to Slide 23, the university on-campus partnership. I think this is a positive development in the post COVID-19 world. It was after the half year. It involves an on-campus development partnership with Cranfield University, which is a very strong global reputation, especially in business. And the transaction involves developing 613 beds for delivery in 2021 and 2022, and there is scope for further phases. Of course, universities are increasingly facing up to their aging older accommodation stock, which needs generating to provide a world-class campus to be globally competitive. And arguably, this is even more important now. We know that off of all PBSA stock, roughly 300,000 beds is owned by universities and 50% of that was built pre-1999. So I think there is a good opportunity for the business to grow into this space further. This is Watkin Jones' first on-campus partnership and absolutely complement the existing off-campus development model. So then turning to the final slide, Slide 25, the summary. I would sort of characterize it that WJ is performing well to the half year. Watkin Jones is resilient coming into COVID-19, adopted a cautious approach in the face of COVID-19, which does need very careful management. There's a clear intention to reinstate guidance and the dividend at the appropriate time. WJ's first response is being built on 2 pillars, firstly, and most importantly, health and safety and then cash conservation. And WJ has been acting responsibly to stakeholders. We're a strong business. We demonstrated that not just in our financial liquidity, but the fact we've been able to remobilize up to 75% construction activity, which, I think, helps give confidence over this year's deliveries, our forward sold and secured pipeline gives multiyear revenue visibility, and the residential for rent sector's structural attraction puts WJ in a strong position as we move into the next phase. I think that draws an end to the formal presentation, and now we're ready to take audio questions.

[Operator Instructions] Our first question comes from the line of Kieran Lee from Berenberg.

Just a couple of questions for me. So we've seen you announce the university partnership with Cranfield University. What sort of proportion of total PBSA developments do you see partnerships reaching in time? And how do margin compare versus your standard development projects in PBSA? And secondly, the question is on COVID. Should we see -- basically, fourth quarter has remained virtual for the autumn term, what impact to income do you envisage that having?

Thanks for that, Kieran. Perhaps if I pick up the first question and then Phil can pick up the second. So in terms of the first, I would say, early days with on-campus, but I do agree. I think, very exciting. I think undoubtedly, the university purpose-built student accommodation stock represents some of the most aged and arguably obsolescent across the U.K. As we set out earlier, universities hold about 300,000 beds of the total part of just over 600,000. And of that 300,000, 50% are pre-'99, and a lot of that, 150,000, does stretch back many decades into construction in the 50s and the 60s. So there is a significant amount of stock that is coming up for redevelopment, which I think most universities acknowledge the need to do that. And I think on that basis, where WJ, without any conflicts of interest, because we don't retain the ownership of any of the student accommodation assets, we can provide that sort of capital-light model whereby the universities can receive a capital receipt for their existing facilities. They can have regenerated world-class student accommodation potentially off their balance sheet is a really good sort of partnership, which you can see being quite scalable in time. In terms of -- although I would add, it is early days. This is our first transaction, which is a good transaction, but nonetheless, it is early days. But margins at the moment, we're seeing similar margins to what we target off campus. So I think at that stage, I'll hand over to Phil for the second point.

Thanks, Richard. Yes, just in relation to the rental position on the leaseback that we have and with the potential for obviously lower numbers of students going into the academic term, the eventual obligation that we're carrying on those student leases in total for the year amounts to about GBP 11 million. In the absolute worst-case scenario, this actually would be worse case where there were no students and occupants at all for the academic term that would lead to a cost for the business of between about GBP 3 million and GBP 4 million for that term and -- but it's absolutely worst case and based on the sort of regulation numbers that we should refer to before. I think for a more realistic downside scenario, it might be [indiscernible] (00:43:00) perhaps 50% off of that figure.

And the next question comes from the line of Denisha Naidoo from Peel Hunt. We'll try the next question from the line of Andy Murphy from Whitman Howard.

Andy Murphy, Whitman Howard. I have 3 questions, if I may. The first 2 I'll probably connect to the ones with bit of a sort of a -- kind of an interesting issue, I think. First of all, on the pipeline, for both the PBSA and BtR. Can you give us a flavor, perhaps, of how the pipeline has either been affected or how you think it might be affected [indiscernible] sort of any crystal ball on [indiscernible] what do you think the changes might be there over the next year or 2 given the situation you're in? And related to that, can you talk a little bit about what your thoughts are around pricing on both sides of the business? And then the last question was on remote working and whether the COVID-19 pandemic has affected the way you're thinking about the short or medium term, about how your own employees will be working in terms of being at work or whether they'll be more spread out, more homeworking, more or less requirement for office space?

Great. Thank you for those. Let me have a go at all your questions. And Phil, if you wanted to add something towards the end, I'll pause for you there. So in terms of the pipeline, you're right. It feels like the sort of first 2 questions can be sort of picked up together. The way I'm thinking about the pipeline is that we're largely forward sold. And therefore, it's all about getting those schemes delivered, and we set out through the sort of presentation the various initiatives and the fact we're up to 75% operational. And we are sort of making good progress with regards to sort of mitigating disruption, et cetera. And so we've got good visibility for the 2020 deliveries, and we've got a good handle on 2021. Of course, with the 2021, just by virtue of time, we have longer to mitigate further. And so that's very much our sort of important piece of the first business with regards to that. I do see real institutional investor demand being quite resilient, both for BtR and PBSA into the medium term, but I can see there's some disruption on PBSA, and therefore, we have been focusing and are looking quite strongly into BtR. And I did flag during the presentation that our secured pipeline, [indiscernible] pipeline is now larger for BtR than PBSA. There is clearly a very large addressable market for BtR and potentially sector itself could have something or they sort of coming of [indiscernible] of this pandemic. And then in terms of our valuation impacts on [indiscernible] I guess the point to pick up on here is that we are an asset-light developer, and therefore, where there could be a change in the sort of mark-to-market of asset values within the sector, we would expect that to be more than compensated for in a proportional discount on land, which we acquired, and therefore, helping to insulate our margins as we go forward. In terms of working, I completely agree. I think everything has changed in terms of how we will look to sort of operate the company going forward. Our business continuity was always set to ensure that our business could continue to function from remote working, but we will be pleasantly surprised just how well that has worked and just how well the company has really taken to sort of having to be flexible and innovate slightly in terms of making remote working work. So I do think, going forward, there will be a very healthy continued balance and blend of remote working, home working, collaborative office space type working just to ensure we get that proper sense of community and to engendering team and so on. But I can see certainly that home working just for people's live-work balance being a healthier part of how we run the company. I think it's just a very important way of how we empower people to be responsible for their own work that they do and giving them more autonomy as to how they want to structure their working week as I say it's better for live-work balance. It's more effective for the business because clearly, there's less office space for us to rent, et cetera, et cetera. So that's something we're working through as an executive team at the moment.

Next question comes from the line of Clyde Lewis from Peel Hunt.

That was me [indiscernible] as Denisha. Apologies for that. I think I've got a couple of questions, if I can. I mean, firstly, in terms of land opportunities, Richard, you referred to a desire to make the best of opportunities that are going to come. I mean, do you think that's going to have a bias towards build to rent or some PBSA [indiscernible] a balance obviously the off-campus rather than on-campus for PBSA? That is the first one. Second one, in terms of -- probably more for Phil. In terms of the scale of the final payment, I mean, obviously, given how important cash flow is and you flagged it, but how important that sort of final September payment is? I mean can you give us a sort of rough idea? I mean, is it plus or minus GBP 20 million, I suppose, in terms of that sort of final month's payments for all the schemes that they do to get completed there? And the last one, I suppose, was winding this all back a little bit to pre-COVID and just how things were evolving on the yield front, particularly on the build to rent side of things in terms of what you were finding when you were talking to investors on how their understanding and appreciation of that market was evolving?

Sure. Okay. Thanks for those. Let me have pick up 1 and 3, and Phil, you can pick up the second. That was appropriately signpost for you, I think, by Clyde as well. So in terms of the balance of the pipeline, look, the -- it certainly appears that sort of BtR is, at the moment, quite resilient. Clearly, we do have quite a way to go through the recession before we can sort of declare anything firm on that. But nonetheless, at the moment, performing well, and institutional investors clearly are following consumer demand. So we are hearing good things from them in terms of demand to grow their portfolios in that regard. I think on the student side of things, undoubted short-term disruption, but really confident on the medium-term outlook, especially -- or the medium- to long-term outlook through this disruption, which is possibly sort of 12 to 18 months long. I'm really confident with regards to the strongest universities in the U.K. to sort of endure through the other side and revert very much on to that growth trajectory that we've been talking about for the last few years. I think all the preconditions are still in place. I don't think the market has changed from that respect. So still very sort of long and quite positive about both BtR and PBSA. But I think interestingly, we have -- we are adjusting the dynamic of the balance of our development pipeline. A couple of years ago, student accommodation was the engine room and BtR was the sort of [indiscernible] growing quite fast. I think we do see that BtR can continue to have an extremely healthy waiting within our pipeline, potentially more than 50% on a permanent basis going forward. And that's something which we just want to continue to watch and monitor. As I say, I think for the right student accommodation development sites for the sort of top 30 or 40 university markets, I think there will be extremely strong liquidity, which will continue to grow into the medium term. Phil, can I hand over for the second question to yourself?

Yes. Thanks, Richard and Clyde. Yes, in terms of the final payments due on completion of this year's deliveries and the September number that we're looking at is around GBP 30 million. In addition to that, we also have the for-sale development at Liverpool Road in Chester, which essentially build complete. So that one is due to be handed over in June, which will contribute to further GBP 21 million of revenue associated on cash associated with that. So in total, across issues, deliveries, the final payments were effectively just over GBP 50 million.

And then just on the final question about sort of BtR yield sort of institutionally investor appetite. And I think -- as you already say, I think sort of pre-COVID, so Q1, we were seeing sort of growing and deepening sort of global interest for U.K. BtR for all the characteristics, which we're very familiar with. And I think sort of transactional evidence that we were seeing going under offer towards the end of Q1 was beginning to point to further yield compression in certain submarkets. And clearly, at the moment, most things are on pause with regards to that. And I guess, over the next few weeks and months, we'll see some more sort of mark-to-markets until we understand exactly where the investment values have moved to.

And the next question comes from the line of Glynis Johnson from Jefferies.

I have 4, if I may. And actually, quite a lot of them are numerical base so they may also fit with Phil. The first one, just in terms of cash. You talked about forward sales perhaps being pushed back a little bit. You talked about deepening the development pipeline, but the build is still on track. I wonder if you can tie that all together and put it back in the context of the GBP 100 million net cash moving up to GBP 150 million net cash that you talked about at the Capital Markets Day. Is that still a realistic set of numbers in terms of the net cash that you require? The second one is just on that Slide 15. You, very handily, give us all but 1 set of numbers. Therefore, we can work out the number of 315 as the result of cash flow. But I'm not sure what that number actually is. I can't find either 2,000 or the resulting number into anything in my spreadsheet. So can you just explain what that chart is on the right-hand side or exactly that's showing it? Again trying to tie numbers together, you've talked us through the final payments, but you also talked about GBP 390 million of revenue due or revenue from forward sold '20 and '21. Again, what is that GBP 390 million? Is that the revenue you're expecting in second half of this year for the forward sold? And then lastly, this GBP 390 million of pipeline, again, what is exactly that number? Is that the [indiscernible] pipeline, which is already forward sold? Or is it the pipeline across both PBSA and BtR in its entirety? If you can just give us the background of that number.

I'll take you through those questions in turn. Certainly, I think in terms of cash, where in the Capital Markets Day, we referred to the current cash position of -- or cash requirements of the business of GBP 150 million, and that potentially increasing to GBP 150 million of the business move forward and the growth opportunity was realized. I think those parameters are potentially still appropriate for the business. So in terms of the ongoing position of [indiscernible] we are cash generative month on month, and therefore, that would be pretty good, sort of maintained as we go through the current development phase. Whilst over the coming short term, we might see a slightly lumpier profile in terms of the number of developments delivered over the short term. With the growth in the pipeline that we're in position to focus through the pipeline that we have and the opportunities, which we believe will come forward over the coming months and into the short term. The opportunity will be there to grow that pipeline and still realize that growth opportunity into the future. So I think everything we've talked about really at the Capital Markets Day in terms of that future opportunity remains intact. But in the very short term, I think you'll just see a very lumpier profile of delivery. So we're just [indiscernible] but fundamentally outstanding cash position, the cash requirements of business remain unchanged in that regard. And that cash requirements that we have, combined with the increase in the [indiscernible] credit facility you have really gives us that substantive firepower to take those opportunities in the market that we will come forward. In terms of the second question with regard to Slide 15 and what about sort of monthly cash of GBP 315 million that you referred to represent. But really the members has intended to demonstrate [indiscernible] as we are today for the current month of trading at [indiscernible] into the businesses and what -- how fixed costs going out again that are to redemonstrate that with the sort of level of mobilization that we're at, we are cash positive. Then against that is fact that I think we probably described before, during the actual development build period of the monthly income that we generate from the build work that is carried out broadly covered very small margin, the development costs of carrying out that work and that's expected to be month on month at the moment is about GBP 2 million [indiscernible] referred to on slide there. So that's the kind of core income [indiscernible] business as we go through the sort of early summer months, what then really then come in on top of that are those final payments that we referred to during the presentation and [indiscernible] described to really adding to that sort of increase in our cash position as we go through the final quarter of this year. When we look at the forward sold pipeline, the third question, in terms of what that represents, GBP 390 million of value yet to come is the -- effectively the revenue value that we have yet to recognize are these deliveries which are due for completion in FY '20 and also for FY '21. So without any further sales taking place, there is a factoring of GBP 390 million of sales revenue yet to book [indiscernible] forward sales being -- the cash position actually will be actually slightly more than that because clearly, we've had revenue recognized already for the half year point for development in build. And there is an -- sort of accretion of the final payment value that's due [indiscernible] which is paid [indiscernible] the fourth quarter of each of those years effectively. So it's GBP 390 million of sales revenue and the cash value of that is probably more in the order of sort of GBP 420 million to GBP 430 million [indiscernible] business there. In terms of the pipeline, the fourth question, I think 2 aspects to that. The forward sold pipeline is the GBP 390 million of revenue yet to work. And then we have the secured pipeline and the figure there which was the pre-COVID-19 value of those future developments associated with our secured pipeline. So clearly, the ultimate value will depend upon whether we have any movement in yields associated with current situation, but other things being equal, the value is attached into that secured pipeline that we have.

Sorry, the GBP 690 million is in addition to the GBP 390 million or the GBP 690 million is including the GBP 390 million?

The GBP 690 million is the value of the secured pipeline that we have been in.

Sorry. I'm slightly confused on my terms. That secured pipeline is above and beyond the revenue you're yet to recognize for that [indiscernible] as an addition?

Yes. that's correct. Yes.

And the next question comes from the line of Alastair Stewart from Progressive Equity.

Three questions for me. First of all -- sorry, can you hear me?

Yes. Yes.

Three questions. You said that the future pipeline of GBP 690 million is for the first time about 50% build to rent. I'm presuming it's just nudged above the 50% level. But based from what you were saying, Richard, about BtR coming of age, looking about 3, 4 years ahead, could that be significantly more than the current pipeline? That's the first question. Second question, Fresh. Is there -- do you foresee any increase of sales ongoing for extra work in terms of sanitizing or just keeping the virus spread at a lower level because there's no reason why we shouldn't go for a future virus epidemic so Fresh sort of work increase on a permanent basis. And mainly on [indiscernible] is there -- is the product going to be much different to your existing off-campus product? And my assumption is most on-campus [indiscernible] 6, 7 bedrooms, et cetera with shared bathrooms, all quite [indiscernible] going to be closer to the fairly high stake off-campus development that we've seen around?

Great. Thanks for these, Alastair. Just sort of working through the -- your first point, is there scope for the BtR pipeline to grow over the next few years? I guess the answer at the moment is there's certainly scope. It's a very large addressable market. It does feel like institutional demand is very much growing off the back of growing consumer demand. And we know that all of the sort of structural sort of tailwinds are there for the sector to really grow. We flagged already that whilst recessions are never good for anything, potentially BtR might well sort of come of age through this is not to say it's remote the sort of count cyclical at all, but potentially, it's more definitive because of the characteristics we have set out. So I think it's too early to be definitive, but I think certainly, we are very well positioned with our sort of growing sort of BtR experience and expertise in our existing relationship with institutional investors. And therefore, assuming that market does continue to go up, I would expect our sort of proportion and depth of our BtR pipeline to grow with it. In terms of Fresh additional services, I mean it's a good point. I mean, Fresh are very versatile. They are learning new sort of competencies all the time. And I think they've responded extremely well in the face of this pandemic. I've seen a lot of first-hand evidence where they've been working well with universities, local authorities, various sort of local sort of health agencies as well as dealing direct with some very, very sensitive and difficult tenant requirements at this time as you all well imagine. And I think Fresh has come through this extremely well. Their standing, their reputation, their brand. I hope, therefore, has been enhanced through this and therefore their ability to sort of grow revenues going forward I would hope would also sort of follow that. In terms of Cranfield, I guess the essential difference of a campus development compared to off-campus is that there's all the facilities of the university, very close buying, close proximity. So all of the catering, all of the study, all of the leisure, recreation et cetera, et cetera, is all there. And therefore, puts a slightly different dimension to the need for communal space is [indiscernible] on campus. But I think having said that, there certainly is all of the benefits of the sort of modern student accommodation that's been sort of developed and evolved over the last couple of decades and the off-campus model is absolutely into the on-campus model, and it will leverage all of these sort of great facilities, which are already there in abundance with Cranfield.

Just to double check and a question on Fresh. Could it become more permanent -- this is 1 of the -- the fact is that has to be fit into a long-term contract going forward in a virus alert. Basically virus is probably back at some point. Do you think it will be a permanent expansion of the sort of work?

I think from that perspective, consumers -- we now expect the consumers will going to be checking to make sure that any of the hospitality and management providers can absolutely ensure, they can guarantee a kind of safe and secure environment, which does include appropriate sort of cleaning and sterilizing. And I think that will become part and parcel of the sort of routine scope of any good quality property manager. I think that's absolutely right.

[Operator Instructions] Our next question comes from the line of Romney Fox from Aberdeen Standard.

I've got 3, hopefully, very quick questions. I'll get them out. On Cranfield, just wondering, is -- should we think of this as being sort of a standard deal where it's now incumbent on you guys to go find the funding partners, the people who will eventually end up owning those assets? Maybe some color on how that would work or Cranfield doing it in a different way [indiscernible] Question 2, and apologies, you might have covered this in your answer to Kieran, I'm not sure but the GBP 1 million figure given for sort of student support, I assume that sort of effectively relates to the full academic year that [indiscernible] financial year that it includes the sort of 50% occupancy for the summer term time? Just want to make sure I got that in my head. And lastly, just good news on HSBC and that revolver being extended out to 2025. I just have a question [indiscernible] what term cover that in terms of sort of covenants? Is there a scenario under which you wouldn't be able to access the GBP 400 million?

Thanks, Romney. I'll pick up the first one, and then perhaps Phil, you can pick up the second and the third, if that's okay. So in terms of the first one, Cranfield have already gone out to secure the finance they needed to fund the development, and therefore, it is drawn down and ring-fenced funds already committed and Cranfield are funding it themselves.

Thank you, Richard, for allowing me. Yes, in terms of the second question, the GBP 1 million cost for the group associated with the student support measures that we've implemented. Yes, that relates to the cost for the balance of the full FY '20 year. So it's the third term cost to the group associated with the 50% occupancy of the 6 properties that we have under sale and leaseback arrangements. So with the agreement for the 50% students who left the combination sort of early pre the lockdown position. The cost effectively [indiscernible] in the final term rent from those students together with some allowance for students [indiscernible] in accommodation for slightly longer, but at the end of the academic term, the cost of the group of GBP 1 million in total. With regards to the HSBC revolver, there were no terms or restrictions on that, which [indiscernible] in terms of covenants as far as [indiscernible] draw down and that is concerned, it contains fairly standard sort of banking covenant. So we've got an interest covenant in there and [indiscernible] levels, which really should be very, very manageable for us as we go forward. So I'm particularly concerned about those, but otherwise it's there, available for us to [indiscernible] in respect of any future pipeline additions that we made or developments that we might undertake.

And as there are no further questions, I will hand it back to the speakers.

That's great. Thank you. Thank you for that and really just to sign off by thanking you very much for your time this morning and enjoyed running through the interims presentation with you and chatting through some of your questions. But thank you very much and speak again soon. Thank you.