Watkin Jones Plc (WJG) Earnings Call Transcript & Summary

Welcome to the FY '21 prelim results for Watkin Jones. As already been introduced, my name is Richard Simpson, the Chief Executive; and alongside Sarah Sergeant, Chief Financial Officer, we are delighted to be presenting such a strong set of results this morning. It all very much underlines that our growth strategy is firmly intact. If you turn to Slide 2 and turning to the agenda, I'll run you through an overview of FY '21 performance and steer as to how we have got going with FY '22. Sarah will then take you through financial review. I'll then pick up a sector review to bring you up to date with the residential rent, tenant, consumer and also investor trends. Sarah will then analyze our development pipeline progress, update on our property management on Fresh before reminding you of the key tenets of our ESG strategy, future foundation launch at the Capital Markets Day in September last year. I'll then bring you up to speed to the government's latest announcement on cladding where I summarize the overall FY '21 and outlook position by then the [indiscernible]. The whole session will last approximately 1 hour. So turning to Slide 4 and the current performance of the business. We can see that all areas of the business are performing well, supported by continued positive reratings of the residential for sector and very meaningful progress with our secured pipeline. The operating capability in the business over the last period has been strong and demand for our product from investors arguably never been stronger. This is forecast to be sustained because of the strength of the sectors we operate in and our market leading position. So in FY '21, revenue recovered strongly as did profit underlining strong margins and discipline in cost control. Cash and liquidity have further strengthened and all this combined has led the Board to declare a financial year full year final dividend of 8.2p per share. When Sarah joined in October 2021 last year, she flagged at the subsequent Capital Markets Day, she would be reviewing the capital , and this is ongoing. Turning to outlook. Our sector is positive. Current [indiscernible] for 13 sites under development proceed on track. All FY '22 completions are forward so and build costs remain with its forecast of being particularly [ rigid ] here. The pipeline is deepening, well progress with our Affordable Homes, while [indiscernible] and our Future Foundations ESG strategy is already getting good traction in the business. So turning to Slide 5, FY '21 at a glance. So during FY '21, [indiscernible] completed and successfully sold comprising just over 1,000 BTR apartments and circa 3,200 PBSA beds all across the U.K. managing ongoing COVID supply chain related program cost quality risk well. The Fresh, our property manager continued to take market share, growing beds under management by circa [indiscernible] year-over-year, a CAGR of about 9%. Fresh's reputation has been significantly enhanced through COVID because of its responsible actions in managing tenants, our customer's safety. All financial measures of performance [indiscernible] positive view and supporting the dividend per share recommendation. Looking at the GBP 1.8 billion secured pipeline rate to about 17,000 bedrooms across 4,000 BTR apartments and circa 7,800 PBSA [indiscernible]. BTR's largest compared to the pipeline, and we expect this trend to continue. Year-on-year CAGR of the pipeline is 20% and we are eyeing up good opportunities in land market across BTR [indiscernible] and whilst not specifically in these numbers, the Affordable Homes pipeline, where we are looking to meaningfully deepen our pipeline further. So turning to Slide 6. So just bringing you up to date into this financial year for the first quarter, and we are on track in Q1. Good progress across all areas of the business. Work on site progressed as well with 13 live development schemes and build costs in line with our budgets. Pipeline has continued to deepen with a notable prime PBSA being acquired on the balance sheet [indiscernible] planning permission. The forward sales market for resi for rent is very strong. This has translated into the sale of the PBSA scheme in Edinburgh to Vita Group, 2x BTR schemes and Leatherhead and Birmingham and 3x PBSA schemes in [indiscernible] offer to global institutional all at our targeted margin. On this note, I'm going to hand over to Sarah, to run us through the financial review.

Thank you, Richard, and good morning, everybody. So just turning now to Slide 8. I'm going to provide an overview of our financial performance for FY '21, which we released this morning. This is a very strong set of results for WJ. We've reported revenue of GBP 430 million, up 21.5% on FY '20, reflecting an increasing contribution from our BTR business as well as recovery and strengthening of the forward sales market. This was delivered with a healthy gross margin of 19.7%, with some impact from a higher level of land sales than we had in the prior year, but overall showing continued cost control and strong closeout of our development. This cost control continued at an overhead level enabling us to report operating profit of GBP 57.3 million, 11% up on FY '21 and the corresponding 12% increase in EPS. And the continued strength of our capital-light business model enabled us to report ROCE of over 70%. This continues to be a set to leading position. Turning now to Slide 9 and the balance sheet. Overall, this is in a very strong position, with a key point to note being our -- our net cash position of GBP 124.3 million versus the prior year of GBP 95 million. We have continued to manage our working capital extremely well, reducing it despite the growth of the business to GBP 77.6 million. Our inventory and work in progress are broadly unchanged at GBP 127 million as we look to recycle our development through the pipeline. And as last year, we carried the PBSA operating lease assets on our balance sheet under IFRS 16, with an asset position of GBP 103 million and a lease position of GBP 29 million. As Richard stated at the beginning, and as I committed to at the Capital Market Day in November, I'm continuing to look at and evaluate the efficiency of the balance sheet. Turning now to Slide 10 and some more detail on the cash and liquidity position. We delivered a very strong cash performance, reflective of the highly cash-generative nature of our business model. Operating cash inflow was GBP 61 million, a 58% increase from the prior year. We closed the year in a very strong liquidity position with gross cash of GBP 136 million and available facilities of GBP 102 million, giving us a total position of GBP 238 million. This very robust liquidity position going forward enables us to take advantage and invest in the growth of the development pipeline. With this strong position, we declared a full year dividend of 8.2p, in line with our policy of 2x cover. This dividends 12% up on FY '21. Now moving on to Slide 11. I will now look at our segmental review. The bar chart on this slide shows breakdown of revenue for FY '20 and FY '21 by our operating segments. You can see that student accommodation continues to be the weight of the business but there is increasing contribution from build to rent. The build-to-rent revenue of GBP 138.6 million represented an almost 50% increase from the prior year, with 5 developments being completed in the year, and revenue recognized from 2 other forward sold sites in line with our revenue recognition policy. For PBSA, we reported revenue of GBP 260 million, a 15% increase on FY '21 with 7 developments being completed in the year. Fresh revenues at GBP 7.6 million were broadly unchanged, although the number of beds under management did increase by 10% at the start of the financial year. The reason that the rent revenue stayed flat is due to a decrease in the variable fee income earned compared to the pre-COVID position. And for homes, FY '21 reflects a year of pivot of our residential business to Affordable Homes. We sold 79 units in the year, which were mainly our traditional residential build. This was slightly lower than the prior year, which included the sale of a Chester apartment block on a turnkey basis for GBP 5 million. And our pilot [ site ] at Crewe continues to be on track, and I'll cover that more later. Now turning to Slide 12 to look at the segmental analysis of gross profit. Again, these bar charts show split for FY '20 and FY '21. The build to rent reported a very strong gross margin of 21.5%, up from the 19.4% in FY '20. This was essentially due to strong cost control and healthy margins on the 6 sites that we completed during the year. It also reflects the lower level of land sales in the year, for example, Lewisham, which slipped into FY '22. The reverse was opposite in PBSA, where we had a higher percentage of land sales, 3 compared to 1 in FY '20, feed into a slightly diluted margin of 19.4% compared to our overall target of 20%. We continue to target a margin of 15% for BTR and 20% for PBSA and are comfortable that any cost increases are mitigated by higher top line values. For Affordable Homes reported a gross margin of 11.3%, down from 15.4%, and this really reflects the sales mix and the pivot from private housing. And again, accommodation management Fresh very strong margin, a gross margin of 52.6%, with some small impacts from the lower level of variable fee income. With that, I will hand back now to Richard to cover the sector review.

Thank you, Sarah, and turning to Slide 14. Looking at the residential-for-rent sector update. Investor demand is continuing to increase significantly for subsectors of resi for rent. As a percentage of real estate holdings, resi is up to 3% in the early 2000s, now 13% in 2020, so significantly rerated. Investment in the U.K. residential in 2022 is forecast to be 20% higher than last year, which itself was a record year in its own [ right ]. The U.K. is still a global top pick for real estate investment. All subsectors of resi for rent are forecast to benefit from increasingly high volume in the next 5 years, driven, of course, by its characteristics being good quality, effective income with an inflation [indiscernible] correlation to the economic cycle, positive returns, structural growth story and a quality ESG perspective [indiscernible]. Turning to Slide 15, we have a look at the subsector. We'll start with BTR consumer trends. The backdrop here is of continued growth in the number of households renting [indiscernible] U.K. housing stock, absolute growth of 3% plus [indiscernible]. Recognition of benefits providing high-quality homes with good services and amenities is driving more demand for BTR over the traditional private [indiscernible] sector. And you can see from the stats here that there's growth [indiscernible] relative affordability as a percentage of household impact is higher for BTR. And this is driving in turn a broadening tenant base, for example, 18% of BTR residents are public sector workers. Recognition of BTR is being furthered by high street names, getting John Lewis, Lloyds [indiscernible]. This growth in demand for BTR renting is not being met by any homes. And of course, this leads to strong rental growth and includes a strong rebound notably in London. So turning to Slide 16, we look at institutional investors following consumer trends. 2021 investment volumes for BTR were at record levels in the U.K. at GBP 4.1 billion, with a first GBP 2 billion offer at year-end. Forecast growth in volumes over the next few years are at circa 20% CAGR with a good broadening of global investor base investing in BTR. And this investment benefit in all parts of the U.K. For example, 70% of [ 18 to 21 ] volumes were invested outside of London. This is all driven, of course, by higher [indiscernible] consistently above 95%. Strong rental growth forecast, which were averaging at 3.5% to 4% for the next 5 or so years. So turning to Slide 17, and we'll do exactly the same analysis on student accommodation. Structural growth of student numbers in the U.K. over the next decade is estimated to be very strong coming from a combination of population growth in the U.K. and growth in international student numbers, principally non-EU international students. This growth is forecast to be circa 300,000 by 2030. And this demand growth alone equates to circa 50% of all existing PBSA, both university halls and corporate residences. And that's before you take into account the 1.1 million or so students who cannot currently access PBSA because of lack of supply. Applications were at record levels for this academic year and acceptances remain at historic highs. This academic year has demonstrated a significant recovery in occupancy from COVID levels and progress in letting to the next academic year are ahead close to prepandemic rates of booking. It's worth noting the PBSA sector brand is stronger with students than before the pandemic. And this is because of the excellent [indiscernible] and well-being care provided as well as the general approach to being highly supportive in rental payments themselves during the COVID period. PBSA is a more attractive offer to students today than ever before, and the recovery in occupancy is a very positive sign as to the resilience of the sector and the growth in student numbers forecast will support the PBSA sector and the development supply response in the years to come. So if we turn to Slide 18, we can look at the institutional investment market. Investment volumes recovered significantly in 2021 to circa GBP 3.9 billion, and this is in line with pre-pandemic run rates, especially actually if you adjust for the 2 large portfolio transactions in 2019 and 2020, and clearly, both were pre-pandemic. There's been assessed liquidity of about GBP 14 billion targeting the U.K. PBSA sector at the moment. And it's possible that with Brookfield Student Roost business, which may come to the market shortly, could have a value of around GBP 3.5 billion. And if it closes this year, could lead to a record year in PBSA volumes in 2022. Signs of yield compression in calendar Q4 '21 and also rental growth are creating attractive total property returns. We're currently seeing demand at historically high levels for modern new purpose-built student accommodation developments, which provide a high level of assurance on ESG credentials as well as building a material safety quality. This is a trend which will continue and [indiscernible] product over older stock in the market. If we turn now to Slide 19, and we'll have a look at Affordable Homes. From a demand perspective, we assess this in a slightly different way. I mean housing waiting lists could potentially double in 2022, having been consistently above 1 million since 1997. When you look at the required run rate, which is between 90,000 and 100,000 new homes annually and the fact that what is being delivered is roughly half of this, which actually then nets down to 0 when you net off the right to buy transactions, which have come out of the supply, you can see that the demand levels are increasingly growing. Homes England, the government body tasked with expanding affordable housing provision are well funded, and they're also very highly motivated to partner with the private sector and deliver more homes. I do believe this is one of the big success stories of recent years in terms of government intervention, in terms of real mindfulness to make a difference in this sector. Demand and growth in demand is throughout the U.K. very much the [indiscernible] a national story. So just turning to Slide 20. Just look at the investor response. So as with all resi-for-rent product, institutional demand is growing, is growing quickly, very similar professors are now looking at affordable who we've been working with has been active [indiscernible] for some years, the underlying rationale to invest in Affordable is very consistent with the resi-for-rent story, high expensive income, low correlation to the cycle, positive TPR performance, big story, incredibly strong government. And of course, one of the strongest ESG stories that you can have if you are [indiscernible] invested in real estate and really want to make a difference. Returns are consistently [indiscernible] for example, voids are at about 1.5%, generally a full housing tenancy, they're not going to typical private rented sector. Investment volume growth is, therefore, consequently forecast to grow at about 10% with a significant rerate already getting the [indiscernible]. And I'll give you an example. Today, 70% of capital affordable institutional capital were [indiscernible] this was about 30% [indiscernible]. I'm now going to hand back over to Sarah [indiscernible] development pipeline, fresh and ESG.

Thank you, Richard. In the next few slides, I'm going to cover our pipeline and how this translates into revenue for future years. So first, starting with Slide 22. We've made real progress in deepening our pipeline since the start of FY '21, and we now have a record position of GBP 1.8 billion, which is a 20% increase in our position this time last year and GBP 50 million higher than our position in November. For BTR, this is represented by just over 4,000 units, with a future revenue value of GBP 0.95 billion. And some of the movements in that. We've acquired 3 schemes since the start of FY '21, these are sites in Belfast, Edinburgh and Leatherhead. And we continue to make good progress with planning applications. We've gained consent before schemes, [indiscernible] Charlotte Street and Leatherhead. And as Richard stated at the start of the presentation, 2 of these schemes are illegal and are under offer. We've made equally good progress in student accommodation with a current pipeline of GBP 0.9 billion and 7,806 units. We acquired 10 sites, including one to 800 beds in a prime regional location, which we acquired for planning since the end of the financial year. And we gained 7 planning consents, including sites in Edinburgh, Swansea and Nottingham. Moving to Slide 23. This slide shows how that secured pipeline for BTR translates into revenue for future years. A key aspect of our forward sales model is that forward sold development typically contribute to revenue and earnings over a 3 full year period for BTR and 2 to 3 years of student accommodation. And therefore, this provides excellent visibility on our future year earnings and revenue. The top right chart shows the split of revenue between land sales and development works. And the second chart shows the contribution to revenue from the sites in the pipeline according to their current data. I guess the key point to make here is that in FY '22, we have a high proportion of revenue from land sales. This is the result of the catch-up from the COVID-19 period, which did cause some delay in securing planning consents and forward sales but, of course, sets the foundation for the future development revenue in the years to come. And just going from left to right on the bottom chart, you can see that 100% of the revenues for FY '22 is supported by secured sites with circa 70 -- 47% of it forward sold and 74% in sites with planning secured. And looking forward, it shows revenue growth in BTR to GBP 300 million, again supported by the secured pipeline. And we also showing here some revenue assumptions for FY '24. This is in excess of GBP 400 million for this sector, of which 69% is supported by the secured pipeline. Now moving on to Slide 24, which shows the same analysis for PBSA. The top right chart shows a lower proportion of revenue from land sales in FY '22 than we saw in the previous slide. Just going from left to right on the bottom chart, the chart shows that 100% of the revenues for FY '22 are supported by the secured sites with just under 40% of that forward sold and 75% of it in sites with planning secured. And looking forward, shows revenue growth in PBSA to GBP 300 million, again supported by the secured pipeline. Moving now to Slide 25 and Affordable Homes. At the Capital Markets Day in November, we set our ambition for Affordable Homes, and I'm pleased to report that this is on track. These charts set out our target by revenue and by number of units, with our aim to be in 1,000 unit or GBP 200 million business by FY '27. And as you can see, we have a good base of secure land to work from. During the year, we secured sites in Crewe for 245 units and in Wrexham for 51 units. We've obtained planning on these and have sold the majority of the units with a small balance left for open market sales. And we're continuing to progress a number of other key site opportunities for these developments. We repurposed the residential team to Affordable Homes, really restructuring the operations to be able to scale up our delivery capabilities and equally to align the site acquisition and planning processes with those of a wider group but effectively creating a focused Affordable Homes investment hub as we do have for the other parts of our business. And of course, in building these out, we will continue to leverage the group's supply chain and expertise as well as work with existing institutional purchases. We see that there are really 2 compelling reasons for institutional purchases to come into this market: One is the strong, strong ESG credentials that Affordable Homes offers; and secondly, is the similar income streams to those in the more PBSA and BTR sectors. And finally, we will look at all options to accelerate the growth of this very important business stream. Moving on to Slide 26. I'm now going to give an overview of the development market, considering all stages of our end-to-end development pipeline. So taking each in turn. From a land perspective, we are still seeing a small COVID discount on land prices. And then due to the lack of demand in leisure office and other retail sectors, we feel that competition has really, really eased for our kind of in-town development sites. If you consider that 98% of our business is done within town or city centers and the kind of previous sectors that we would have been competing against for land are obviously in a different position from us. From a build cost perspective, and again, as we talked about at the Capital Markets Day, we have current build cost inflation at 3% to 4% in our models. And as you know, due to our forward sales -- due to our forward sales model, we effectively fixed that and back to back that when we sell out when we let the projects. For our next wave of projects, i.e., projects that we're procuring now, we have treated this up slightly to 4% to 5%, but we do expect this to moderate throughout the year. From a supply chain perspective, again, we're not seeing any particular issues from the materials or a labor perspective. The scale of our development is very attractive to subcontractors. And the key -- a greater example of this is the [indiscernible] development in Wembley, which we showcased at the Capital Markets Day. Moving on to investor appetite. This continues to be very strong. And really seeing price increases, which are able to kind of offset exist cost inflation and maintain target margins. We really consider this as the most liquid market for our assets that we have seen to date. For example, of the 11 out of the 12 developments that we completed in FY '21 was secured off market. From planning position -- from a planning perspective, we continue to make good progress with planning permissions across the U.K. We really do see that planning is a barrier to entry and equally our capability is part of our USP. And then finally, we are very proud of our position in the market where our track record and balance sheet are ensuring both the development opportunities and the buyers for this market come to us first. So moving on to Slide 28 and just going to look at Fresh. We continue to be very proud of our accommodation management business at Fresh. It has tremendous operational expertise, which is highly recognized within the sector. And you can see that in the position we have. Some anecdotes. We brought in 1,000 more beds under management for the FY '21 academic year than our nearest competitor and we've engaged 7 new institutional clients. And you can see on the right-hand side, the awards that have been won in the industry. But equally important is the resident's view. And then our market-leading position is evident from our Net Promoter Score and the resident awards that we've won, again, shown on the right-hand side. And we've continued to invest in the business. For example, in the Yardi operation platform, which gives our clients the information that they need, both financial and nonfinancial. And finally, we see a really significant growth opportunity against -- across BTR, PBSA and co-living to take advantage -- especially to take advantage of the institutional capital coming into BTR, and Fresh for example, are working on a white label model, which we would be able to offer to these investors. And finally, just moving on to Slide 30. As a recap, we launched our ESG strategy, Future Foundations back at the Capital Markets Day in November. This was not something new, but a product of 2 years of work. We take ESG very seriously at WJ. We feel it is a really great opportunity to make a difference through sustainability and through the future of living. In the [ safe ] spaces we create in the areas in which we build and the real impact we can have to people's lives, both for our residents and for our employees. We launched our strategy under 3 categories: future people; future places; and future planets. And we feel this is very much embedded in the business. There are, of course, some quick wins. For example, we're changing our fleet to green to electric vehicles. And that's relevant not only for our vehicles, but for our plant that we use -- for our plant and machinery that we use out in our sites. We've now included ESG targets in the bonus targets for the executive team. So in summary, we are making traction, and we feel the targets are stretching, but achievable, and we will give an update on this at the interims in May. And with that, I'm going to hand back to Richard, who's going to give the closing remarks.

Thanks very much, Sarah. Just prior to the closing remarks, I'm going to update on the cladding situation. So if you turn to Slide 32 and just pick up really the sort of government's recent announcement last week on the 10th of January in respect of its intention to create a mid rise cladding replacement scheme for residential leaseholders essentially to ensure that they've got left picking up the cost. The government stated its intention is to raise about GBP 4 billion funded from the residential property development sector. The scheme will also collect information on mid rise leaseholder residential scheme in stating back 30 years. The WJ's position in respect of this clearly at 30 days. However, we are supportive of leaseholders not having to fit the bill and a solution should come from the wider industry. From an initial review of our mid rise leaseholder residential schemes, none were principally clad with either ACM or HPL cladding. And moreover, our existing cladding provision, which we announced in FY '20, covers all schemes featuring ACM or HPL cladding, which is still within the limitation period. And in these instances, replacement works have either been completed or are being procured to commence. Going further back, historically, WJ focused on general contracting work as well as low rise houses for private sale rather than residential leasehold apartment developments. The government is consulting on an industry-wide response, and we will update investors once the government makes its position clear. So turning to that summary. If we just turn to Slide 34. So I think FY '21 is a very good year for us, providing operational effectiveness as well as seeing structural growth in markets we operate in and growth in investor appetite to stock, important extension of our operations into affordable housing, and we will look at accelerating this. FY '21 results were a record year for us. Operating profit up 11%, plus ROCE a market-leading 72% and with the dividend proposed up 12%. We are confident in delivering our FY '22 expectations with all the FY '22 completions forward sold and very excited about the group's long-term prospects. Our strong balance sheet gives significant opportunities to grow the company and deepen the pipeline. GBP 1.8 billion of secured pipeline revenue to come over the next few years is a very significant and valuable asset and I expect this to continue to grow, supporting our multiyear growth strategy. So the business is operating well across the Board in our market-leading position. Our markets are supportive and accelerating their positive rerating and our attractive development pipeline is deepening and broadening into affordable housing too. All of these point to an exciting future for the company. And I think on this note, this concludes the formal part of the presentation, and we will now turn to Q&A, and I hand back to our host.

[Operator Instructions] Our first question comes from Glynis Johnson with Jefferies.

Three questions, if I may. The first one, Sarah, you talked about you'd look at all options to accelerate affordable. I wonder if you can just elaborate on what all options mean? Does it also imply by another affordable business? Following on from that also just in terms of the cash flow. What should we anticipate in terms of investment into the business as we go through the next couple of years? I'm thinking in terms of land, I'm thinking in terms of build, particularly if it's being done at risk, anything that will help us just understand the working capital movements going forward? And then lastly, just in terms of -- you showed the return on capital employed, excluding the sale and leaseback assets. So I wonder if we can explore what the future is in those sale and leaseback assets, not just the PBSA but also the 2 in BTR that you're operating. Are you intending to sell those assets? How much of the capital employed actually fits with those leased assets as a whole?

Thanks, Glynis. I'll take all 3 aspects of your questions. I mean in terms of the first one, in terms of kind of looking at options for Affordable Homes. As I said, we're really willing to look at all options to kind of accelerate the growth of that business. I think the second one in terms of kind of investment in the pipeline, I mean, we finished with a very strong position from a cash flow perspective. And in terms of our projections, that will continue to kind of augment through the year. And I think, again, very happy to look at opportunities that may come. And if that does mean that we end up taking a slightly longer position in the landholding that we would traditionally have done. Again, we will kind of consider that. And then I think, thirdly, just coming on to the ROCE position and kind of those kind of sale and leaseback assets. Maybe if I take the 2 BTR ones first. I mean, again, those are kind of historical legacy sites very -- 3 of them relatively kind of low in value. We are looking to sell those on. But again, consider to have a very kind of minimal impact on the ROCE position. Obviously, as a slightly larger value attributable to the 6 investments -- sorry, not investment properties, the 6 PBSA assets, again, really looking at what the kind of best options are for those given the kind of market for PBSA assets at the moment.

So just following up on the first 2. In terms of working capital, what should we be anticipating in terms of outflow, inflow 2022, 2023? Any kind of ballpark you can give us?

I mean, I think just kind of kind of a continuation of the position that we've seen -- that we saw in FY '21. I mean as you know, we generally assume we have a kind of overall GBP 100 million circa working capital requirement given the kind of peaks and troughs that we do see through the year. I mean obviously, the year-end position is flatted as such because of the push and the completions that we have in student accommodation as we go towards the end or start of the academic year. But equally, as BTR becomes a higher proportion of the business, you may expect to have some kind of smoothing of that throughout the year.

Okay. And just on the first one, the all options. Are you saying you would buy someone else's affordable business? Or are you just talking about site acquisitions?

Yes. I mean, again, I think we are looking at all options and which potentially would enable us to step change that business beyond the kind of ambitions or the targets that we set out at the moment.

Our next question comes from Colin Sheridan with Davy.

Just a couple from me, if I may. I mean you referred to the land market in your comments earlier. I was just wondering if you could expand on that a little bit, I mean, concerning the environment you laid out with price increases sort of offsetting build cost. I wonder if the land market is coming across as a bit flat because of that in terms of pricing, whether there's maybe any pressure on the land market from that perspective, particularly with reference to how easy or otherwise it might be to hit your hurdle rates on both PBSA and build to rent? And then the second one, just on Fresh, I guess. I wonder have we reached the point of where you are started to see variable fee income return to that business? Or will 2022 be another sort of abnormal year in relation to margin?

Thanks, Colin. Perhaps if i start at first one and then hand over to Sarah for the second question you've raised. So in terms of the land market, worth bearing in mind that the overwhelming area where we buy is sort of brownfield town and city center locations for our pipeline. Yes, as the affordable housing business will grow, then the out-of-town location will increasingly grow [indiscernible] secured pipeline. But at the moment, it's clearly a very small [indiscernible] part. So let's focus on the brownfield town and city center market. [indiscernible] it is still really hamstrung is our principal competition there are developers, office retail, hotel, [indiscernible] life in hotel, but it still is a long way down where it was clearly hasn't really moved [indiscernible]. So the competitive landscape in terms of those buying land, it's about benign market cost to be buying into and we actually expect that to continue for certainly the short term. We see that to continue for us. And we will look to exploit that in deepening our development pipeline, certainly. Because of it, we are still seeing land at a discount what we would have seen pre-COVID. Of course, land is a function of a [indiscernible] capitalization based on invested [indiscernible] and where we do have record investment you would have expected land price to [indiscernible] got to pre-COVID, but that just simply isn't the case with your town and city center development of town and city regeneration stream, et cetera. And I think that's, I mean, we will look to continue to sort of enjoy. In terms of affordable housing, I think the point there is a much out-of-town location that's moving into volume house builder area, a highly competitive space. I think where we have an area of competitive advantage is that our development is slightly smaller than your typical volume house would be taking out. We've discussed all that. We would be looking at somewhere between 100 to sort of 200 units as being really good sites for us. That is on the smallish side for volume house builder. It's on the biggest side, an SME developer cautious about how much capital they're looking to put into development, especially on a more traditional sort of build models. So I think that definitely has unlocked sites. And then the second part to unlocking sites is our margins for affordable housing are much lower than the margins which volume house builders look to make. So actually [indiscernible] is stronger where it falls off quite quickly for them. So I think from those 2 elements, actually pretty confident about our ability to deepen our pipeline. I think on that note, let me back to Sarah, on the fresh variable fee point.

Okay. Thanks, Richard. I mean just on Fresh, I think we probably expect that the level of variable fee income to really kind of stay steady in FY '22 as probably still impacted by some of those COVID or kind of social distancing restrictions within the business, but really would expect that to kind of accelerate when we look into the next academic year starting in September.

Our next question comes from Clyde Lewis with Peel Hunt.

A couple of questions, if I may. One thing around, I suppose, the lines between built around and affordable. And how your institutions are approaching in terms of sort of what they're thinking about? I mean, are they really sort of looking at 2 separate parts? Or are those pots for sort of private build-to-rent or affordable sort of accommodation sort of being very clearly divided? Or is that line being blurred? And then how you address that as a group because clearly, you're offering something that most other developers don't. So I'm just wondering how you're looking at that. The second one, I suppose, was on, again, sticking with build to rent, but how you've seen, I suppose, rents evolve, vacancies evolve? And ultimately, what -- again, what the institutions are looking at? Are they looking to change locations away from city centers, more suburban areas, sort of what are they trying to do, I suppose, in terms of their appetite for those sorts of asset classes. And the -- I suppose the last one I had was sort of as you look at the pipeline that you've got this year, how many actual schemes are you looking to sell this year? What would be a good outcome and what would be a bad outcome if you try and sort of give us, if you like, a bookend for sort of what you're looking to do on the sales front?

Perfect. Perhaps if we divide in [indiscernible] if I pick up your first 2 and then Sarah can come in with our sort of plans in terms of divestments. So let's start with how we look at build to rent relative to affordable housing, how that then has an impact on investor appetite. And I guess there's a point there about potential cannibalization or actually the other side of that is an opportunity in terms of being able to provide a range of products and investor in one go. So let's sort of walk through that. I think the first point is that, from my perspective, there are very clean lines between our affordable housing product and our BTR products. And they are as simple as our BTR generally is multistory apartment blocks. So it's your sort of your high-rise, high-density city center living, tends to be multifamily, whereas your -- whereas our affordable housing tends to be single-family housing, so the houses, more traditional houses, in out of town or edge of town location. So I think from a cannibalization perspective, I think it is 0. We have clean lines within the business. We're not stepping on each other's toes as we're securing sites. But then moving to your next point on that, which I think you're right. What we've seen, which has been, I think, really positive over the last 1.5 years is actually how quickly investors have moved from the initial student accommodation being really the sort of principal preserve of where they're prepared to invest their money within living or residential for rent sector within the U.K. to move it quite quickly into BTR, multifamily and actually now seeing the move to affordable housing and single-family BTR too. And I think we can provide for -- clearly, our business model provides for all of that. But specifically, we can provide to the multifamily BTR within our BTR offer, which is your town center apartment blocks and where investors are looking for single-family housing for BTR, we actually can and do provide that through our affordable housing developments. And the reason why we do that is because yes, we anchor our affordable housing developments per affordable housing. But there is a sustainable mix of other tenures for residential, and that is principally our single-family BTR offer. So I think actually, without cannibalizing, we can offer a really good range of product to see investors' requirements, which is really helpful for us. And that's why I'm really pleased that we are on the journey to diversify into this third leg with an affordable housing business because it would open up at the same time our single-family BTR product too. So looking at BTR and what investors are looking for, I think it's pretty clear to me that BTR investors are very confident about the future with that sort of staple town and city center apartment blocks. And I think the difference possibly from pre-COVID is really putting a real premium on good quality amenity provision, be it work-from-home space. We talked before about work-from-home booths or sort of small office pods or small office booths being an absolute staple now of BTR where if you are working from home, you're clearly not confined to doing that from your apartment, you can actually sort of go online on to the app, you can book one of the work booths and you can spend your time in there. And I think those have come into their own amenity provisions when it comes into its own outdoor sort of balcony space or outdoor circulation space on the ground floor, again, is an important part of the offer. But very much BTR is still looking to hold on to those town and city center locations because that's where the amenities are and generally, the tenants want to be close to the action as it were. Having said that, Leatherhead is a really good example of suburban BTR. So we are progressing at the moment. It's under offer for sale scheme, which is a really high-quality suburban BTR scheme. And arguably, we possibly probably wouldn't have looked at that location 2 or 3 years ago. So you can see how it is beginning to sort of expand further from just those sort of prime town and city center locations. I think on that note, I hand over to Sarah, just to talk about our sort of plans for [indiscernible].

Of course. Thanks, Richard. I mean, PBSA, we're looking to sell approximately kind of 8 developments for forward sale this year. I mean it's important to note that 3 of those are included in the portfolios that we referred to earlier and are already under offer. And then from probably a similar number from a BTR perspective. And again, we've got kind of 2 of those quite highly under offer, looking to complete in the near future and with the balance of those developments very comfortable about the disposals. I mean, again, the kind of key point to note here is really just the really liquid market that we're seeing for our assets in terms of the student accommodation portfolio. For that, we received a very significant number of offers, both from institutional investors that were new to us and, of course, ones that we've had worked with before.

[Operator Instructions] Our next question comes from Alastair Stewart with Progressive Equity.

A couple of questions from me. First, on the investments [indiscernible] particularly in BTR Sarah delved on a moment ago, saying there are new BTR investors coming into the market. My impression has been that there's been the huge demand but not very much supply. As a result, can you provide a bit of color on the number of institutions you're now dealing with compared to, say, a couple of years ago pre-pandemic? And have there been any behavior changes of our investors being more prepared to share risk, taking their decisions quicker and so on. So really a bit of color on that. And then on the affordable housing side, sharp illustrative revenue growth shows a fairly smooth upward curve. What sort of annual investment do you margin in land of work in progress going in to support that group? I'm presuming it's reasonably modest because the [indiscernible] model. And then just finally on affordable housing. What's sort of site size in terms of the number of units are you looking for going forward? And is there -- so far, you finding the planners are looking kindly -- you're not just with affordable housing, but then maybe BTR and PBSA on some of these sites. Is affordable housing a new ingredient to pull you through the planning process?

Great. Thanks, Alastair. Perhaps again, if we split those questions. If I look at the change [indiscernible] BTR invested over the last couple of years, perhaps I will also then [indiscernible] planning and then handover to Sarah to think about [indiscernible] into our affordable housing sort of pipeline going forward, I think that probably makes sense. So look, in terms of BTR investors, that sector has been very significant, as we know, over the last 3 or 4 years. If we were to back 3 or so years, there's been a pretty large sort of increase in investors that we now talk to very seriously about deploying capital into purchasing our BTR pipeline. It's been an exponential increase, frankly, pretty much all of the PBSA investors that historically, we have worked with for some time are also now looking at BTR. There's been then on top of that, a significant growth of international capital looking at deploying money into the U.K. BTR. And we know that there's actually a lot of U.K. household names who have been at the forefront, have been for a number of years, M&G, L&G or just a couple of examples who are very active in this space too. So as I say, there's been an exponential increase in institutional demand for stock. And then Alastair, you're right. There isn't much supply. There isn't much stock to sell. We know that, that sort of total number of units either under development or in planning or sort of being constructed or having completed is a little more than 200,000 and that number hasn't really mixed on significantly for a while there, especially when you look at the addressable market that's been assessed as potentially at maturity requiring about 1.7 million units. It shows that there is a significant amount of supply response to come. So what are the current institutions really looking at? And I would say, yes, I think they are being -- they are motivated to put BTR stock under offer. It is a competitive market. We are seeing a lot of competitive tension that is pointing to the liquidity, that is pointing to the positive rerating on pricing, potential yield compression, et cetera, et cetera. And of course, that is following the fundamentals of the sector of very low , very high occupancy and rental growth. All of that is a very positive TPR and clearly capital flows into those stories. But at the same time, the institutions and rightly so are holding the bar very high in terms of quality, in terms of assurance, in terms of safety, in terms of material usage, in terms of ESG strategy for that particular building. So I would suggest that the sort of barriers to entry to access the capital, even though the capital is more liquid than it's ever been before, has probably also never been higher. And of course, I would say this, but I think it puts WJ in a very strong position to sort of partner successfully given our track record and our steps we will be taking to ensure that our buildings are future-proofed and provide the assurance which institutions are rightly looking for. Turning to your second point on planning. I think the simple answer is with affordable housing, there is clearly more of a welcome from a local planning authority, from a local authority when they do see residential schemes and could buy affordable housing than for a more traditional private sales sort of anchored residential development, there is no doubt. Have we yet seen the halo effect from the fact that our business is operating within the affordable housing sort of translate into other parts of the business? Probably not. It's probably still too early to sort of see that real goodwill sort of generate through the sort of brand positioning of the business. I do expect that to come in time, and that's just a function of a business evolution. But at the moment, of course, we are being successful with our planning implications on BTR and PBSA, we all know that the U.K. planning system has high barriers to entry if I put it like that. You've got to watch them very carefully. You've got to navigate them very carefully. You've got to resource your planning applications very sensibly. You've got to really partner with the local authorities. But you can, of course, be successful through the U.K. system, but it is one that has to be handled very carefully. And I think on that note, I'm going to -- I'm conscious of time with slightly, but I'm going to hand over to Sarah, just to just to pick up that point on WIP and then I think post that [indiscernible] will be end of question.

Thank you, Richard. Yes, I mean, just coming back on WIP, I mean, I think we need to kind of support those areas that we've shown in affordable housing, you'd be looking at a land purchase kind of GBP 20 million to GBP 30 million at the year. But again, I think the key point to note here is that we would obviously look to replicate the same forward sale business model as we have with other parts of the business. So obviously, forward selling on to the institutional investor for the Affordable Homes element of -- for the Affordable Homes [indiscernible]. And then I guess for me just kind of one really quick point turn to ROCE. So we've obviously set out our target margin for Affordable Homes of 10%. I mean in theory then that would lead to a slight dilution of the ROCE position, but equally because of the way that we can cycle through these sites more quickly, and we tend to be a year, for example, rather than 2 to 3 or 2 to 4 years for the others has really has -- manages to kind of limit the impact of or mitigate the impact on the overall market position.

There are no further questions. I hand back over to our speakers.

That's brilliant. Thank you very much for that. And I think just to conclude, I think I said for the last 4 results' presentations that we've done virtually, I very much look forward to the next one, which hopefully will be face to face. And I'll just say the same, again, I look forward to catching up in person hopefully for the interims. Thank you very much indeed for your time. We look forward to catching up.

This now concludes our teleconference. Thank you all for participating. You may now disconnect your lines.