Build-to-rent specialist says operating profit will be 10% lower than expected as sales delayed in wake of mini budget

Watkin Jones has warned the market that its full year operating profit will be around 10% lower than expected after ‘recent market volatility’ hit sales.

The developer, which specialises in built-to-rent and student housing, gave the warning in a trading update for the year to 30 September this morning, prompting its shares to fall by more than a third.

Makers Yard Sherlock St

Watkin Jones’ planned 551-home scheme in Sherlock Street, Birmingham

It said purchasers of its schemes have been hit with increased funding costs which meant two forward sales expected to close in September were ‘impacted by the recent market volatility’ and will now be completed in the next financial year.

It said that as a result “the board now expects FY-2022 underlying operating profit to be c.10% below current market expectations.”

The firm is the first developer to identify a specific financial cost from the fall out from chancellor Kwasi Kwarteng’s mini mudget statement, which presaged a large increase in borrowing costs.

It said: “While in the H1-2022 build cost inflation was mitigated by increasing asset values, the group has seen some pricing and margin softness on sales concluded in the second half, with purchasers facing increased funding costs.”

It added that while it expected demand from institutions for its products to remain robust, “we also believe it is prudent to assume that margin pressure as a result of purchasers’ elevated borrowing costs will continue into FY-2023.”

Shares in the firm had fallen by 34% by 11am.

Watkin Jones said its operational performance in the second half of the year was still “materially stronger” than in the first half. The firm previously reported a pre-tax loss of £16.6m for the six months to March 31 after setting aside £28m for building safety remediation work.

See also>> Forward funding deal for Watkin Jones’ 551-home Brum build to rent scheme

In today’s update, Watkin Jones also described investor demand for rental assets as “strong” and said it forward sold three BTR schemes for a value of £900m, up from £300m in the first half of the year. It said it holds gross cash of £105m and £75m in net cash.

The update follows last month’s mini budget, which outlined large tax cuts funded by borrowing. This led to a devaluation of the pound and the share prices of housebuilders falling dramatically. More than 1,500 mortgage products were withdrawn amid warnings of a housing crash.