| 29 July 2024 |
Watkin Jones plc
(‘Watkin Jones’ or the ‘Group’)
Major PBSA development funded with HGP
Watkin Jones, the UK’s leading developer and manager of residential for rent, is pleased to announce the forward sale of a new 397 bed purpose-built student accommodation (‘PBSA’) development together with workspace and commercial units in Stratford, East London, to the Housing Growth Partnership (‘HGP’) (the “Transaction”).
The Transaction is the Group’s first with HGP, a social impact investor and part of Lloyds Banking Group. It is being delivered via an innovative structure which is expected to generate receipts for Watkin Jones over the course of the three year development of approximately £96m, at margins in line with the Group’s stated targets, with the potential to participate further from future value generated by the scheme.
In order to effect this structure, a newly created joint venture, Watkin Jones (Grove Crescent) Holding Limited (the “JV Entity”) has been established, which is owned as to 75% by HGP and 25% by the Group. Under this arrangement, the Group will be responsible for the delivery of the scheme through to completion as well as its ongoing management through Fresh, Watkin Jones’ accommodation management business. Funding of the JV Entity will be provided by HGP as well as third party debt finance. Completion of the PBSA accommodation is targeted in time for the start of the 2026/27 academic year.
The initial contribution from this transaction is reflected in the Group’s existing guidance for the current financial year, with initial net cash receipts of approximately £20m. Further income will be phased over the course of the construction process. It is expected that the scheme will be sold by the JV Entity following completion and stabilisation (the “Realisation Sale”).
The Group’s ability to participate in additional value upside will be driven by the returns generated by the JV Entity as a result of the Realisation Sale. In the event that the Realisation Sale generates returns in excess of agreed hurdle rates, the Group will be entitled to a further incentive payment in cash, with the quantum linked to the level of outperformance. The opportunity to participate in future value creation is a distinguishing factor from the Group’s traditional forward fund model.
Given the time required to complete construction, it is not expected that any future sale of the scheme would occur before Q4 2026 and consequently there can be no certainty at this stage as to the terms of any potential Realisation Sale.
Alex Pease, Chief Executive Officer of Watkin Jones, said: “We are pleased to collaborate for the first time with Housing Growth Partnership on this exciting development. The innovative nature of the transaction underlines Watkin Jones’ ability to find attractive structuring solutions for our institutional partners.
“While we remain encouraged by signs that confidence is returning to our residential for rent funding markets, this is tempered by continued uncertainty around the trajectory of interest rate cuts. We, nevertheless, have a number of schemes in the market which are generating good levels of interest.”