- Higher borrowing costs causing delay
- Profits to miss consensus by around 10%
- Questions over strength of investor demand
Compounding the current negative sentiment towards house builders, build-to-rent and student accommodation developer Watkin Jones (WJG:AIM) warned investors that earnings would miss market forecasts due to slower than expected second-half sales.
The shares, which had already lost 20% of their value since the start of September, fell as much as 35% to 98p in early trading.
The firm said investor demand for residential assets for rent had remained strong during the six months to September, with three schemes forward sold taking the total of forward sales contracted for the year to £900 million.
However, it admitted it had seen ‘some pricing and margin softness on sales concluded in the second half, with purchasers facing increased funding costs’.
As a result, two forward sales which were expected to close in September were ‘impacted by recent market volatility’ and are now ‘planned to transact in the 2023 financial year’.
The knock-on effect of these missing sales is underlying operating profit for the year just ended will be around 10% below estimates.
The company said that while it had good revenue visibility for this year and it expected institutional demand for rental assets to remain ‘robust’, higher borrowing costs were likely to mean lower sales prices and therefore lower margins.
SENTIMENT SOURING
Recent evidence suggests institutions are already getting nervous about the property market with three large UK asset managers imposing limits on redemptions from their funds.
According to the Financial Times, institutional real estate funds run by BlackRock, Columbia Threadneedle and Schroders (SDR) were ‘unable to handle heavy demand from investors seeking to withdraw’ after last week’s tumble in government bond prices forced pension funds to raise cash.
‘Defined-benefit pension schemes, which are major investors in UK institutional real estate funds, have been rapidly selling a broad range of assets to meet demands for collateral’, according to the report.
During the financial crisis in 2008 and the early stages of the pandemic in 2020, some asset management companies had to halt redemptions from property funds as they were unable to sell assets quickly enough to meet investors’ demands.
