TIDM44EB
RNS Number : 5699P
London & Quadrant Housing Trust
10 February 2023
London & Quadrant Housing Trust Trading Update for the
period ending 31 December 2022
London & Quadrant Housing Trust ('L&Q') is today issuing
its consolidated unaudited trading update for the nine months ended
31 December 2022 ('2022 Q3'). All statement of comprehensive income
comparatives are to L&Q's consolidated unaudited prior year
equivalent period being the nine months ended 31 December 2021
('2021 Q3').
HIGHLIGHTS
-- There are 120,570 homes in management (as at 31 March 2022: 118,434)
-- L&Q has completed 3,007 new residential homes (2021 Q3: 2,852)
-- Turnover was GBP793m (2021 Q3: GBP828m)
-- EBITDA(1) was GBP215m (2021 Q3: GBP287m)
-- EBITDA margin(2) was 22% (2021 Q3: 29%)
-- EBITDA margin (excluding sales)(3) was 33% (2021 Q3: 45%)
-- Gross sales EBITDA margin(4) was 14% (2021 Q3: 18%)
-- Net sales EBITDA margin(5) was 7% (2021 Q3: 12%)
-- EBITDA interest cover(6) was 159% (2021 Q3: 256%)
-- EBITDA social housing lettings interest cover(7) was 117% (2021 Q3: 154%)
-- Operating surplus was GBP241m (2021 Q3: GBP276m)
-- Debt to assets(8) was 39% (2021 Q3: 40%)
-- Sales as a % of turnover(10) was 47% (2021 Q3: 49%)
Commenting on the results Waqar Ahmed, Group Director, Finance
said:
"The first nine months of the year has seen L&Q face
material challenges as we seek to address our strategic priorities
of health & safety, quality of homes and improving services.
Whilst we have made significant progress to meet the requirements
of the Building Safety and Fire Safety Act, through our intrusive
inspection programme we continue to uncover defects, therefore
increasing development operating costs. In addition, our commitment
to major works investment programme, which will improve the quality
of our existing homes and address issues including damp and mould,
combined with higher inflation is adding pressure to operating
costs and higher interest rates have weakened interest coverage
ratios.
Whilst in the year-to-date, EBITDA from property sales
activities have delivered marginally ahead of expectations, most
notably due to higher-than-expected margins and first tranche sales
percentages on shared ownership, there is increasing uncertainty on
the outlook for the UK economy that has led to negative sentiment
on the UK housing market.
The key drivers are the rapid and material change in mortgage
rates combined with the rising cost of living that has led to
reduced affordability, homebuyer confidence and subdued reservation
activity for private sales buyers.
This negative sentiment is evident in the land market with
volume housebuilders indicating that land approvals will be
substantially below replacement level in the short-term. Turnover
from land sales, a low volume, high margin activity conducted by
L&Q Estates (a wholly owned subsidiary of L&Q) is 82% lower
that the comparative period. However, L&Q Estates has material
unconditional and conditional exchanges in place with completions
expected before the financial year end. However, if these land
sales are not completed, there is a downside risk to meeting our
EBITDA projections.
The forthcoming end of Help to Buy ('HTB') brings both risk and
opportunity. We have seen a divergence between shared ownership and
private sale demand. Sales rates in shared ownership recovered in
November and saw a small seasonal decline in December, whilst sales
rates for private sales continue to fall and demand remains
subdued. With HTB historically competing with private sales and
private rents rising, we anticipate an uplift in demand for shared
ownership and private rented sector tenures and are well placed to
take advantage.
L&Q has completed over 3,000 new residential homes in the
year to date of which 66% are for social housing tenures. To
address weaker sentiment and our commitment to lower gross capital
expenditure and our risk profile, L&Q continues to focus on its
existing development pipeline rather than new approvals as
evidenced by our stabilised net debt and strong liquidity position.
This means we expect to continue to reduce the number of sites that
we are operating from and homes in the development pipeline."
FORWARD GUIDANCE FOR THE YEARING 31 MARCH 2023
We project EBITDA to be at the lower end of GBP330m to GBP350m
(unchanged) and gross capital expenditure(11) to be in the range of
GBP850m to GBP900m (unchanged). Included within our EBITDA
projections is a c.30% increase in total maintenance costs
including c.GBP45m of gross costs assigned to conduct fire remedial
and safety works (unchanged). Our projections for surplus after tax
are expected to be in the range of GBP240m to GBP260m (previous
guidance of GBP260m to GBP280m) and our projections for EBITDA
interest cover have been lowered to 170% to 190% (previous guidance
180% - 200%) that corresponds to the lower end of our EBITDA
guidance and higher interest costs. Net debt is expected to be in
the range of GBP5.5bn to GBP5.6bn (unchanged).
Financial Metrics Forward Guidance to 31 March 2023
------------------------------------------------- ----------------------------------
EBITDA margin(2) 24% - 26%
EBITDA margin (excluding sales)(3) 35% - 37%
Gross sales EBITDA margin(4) 12% - 14%
EBITDA interest cover(6) 170% - 190%
EBTDA Social housing lettings interest Cover(7) 120% - 135%
Debt to assets(8) 40%
Gross debt to EBITDA(9) 16x - 17x
Sales as a % of turnover(10) c.48%
------------------------------------------------- ----------------------------------
HOUSING COMPLETIONS
L&Q, including joint ventures, has completed 3,007 (2021 Q3:
2,852) residential homes in the financial year to date. This
comprises of 1,980 (2021 Q3: 2,057) completions for social housing
tenures (66%) and 1,027 (2021 Q3: 795) completions for market
tenures. During that same time 1,974 new build residential homes
commenced on site (2021 Q3: 1,405) with the majority of starts
being later phases of existing developments.
DEVELOPMENT PIPELINE
L&Q, including joint ventures, is operating from 182 (2021
Q3: 197) active sites. L&Q has approved an additional 1,045
(2021 Q3: 634) homes during the financial year bringing total homes
in the approved development pipeline to 28,345 (2021 Q3: 31,274),
of which 74% are currently on site. Of the homes approved in the
development pipeline 55% are for social housing tenures and 45% are
for market tenures. L&Q holds a further potential 76,337 (2021
Q3: 74,864) strategic land plots.
The future projected cost of the entire development pipeline
(including work in progress and developments not yet committed or
on site) that extends until the financial year ending 31 March 2040
is estimated at GBP4.0bn (2021 Q3: GBP4.7bn) of which GBP3.4bn
(85%) is currently committed (2021 Q3: GBP3.8bn).
UNAUDITED FINANCIALS
The unaudited financials exclude further adjustments that are
subject to audit review.
Statement of Comprehensive Income
2022 Q3 (GBPm) 2021 Q3 (GBPm) Change
----------------------------------------------------- --------------- --------------- --------
Turnover
Non-sales 5 53 522
Sales 2 40 306
----------------------------------------------------- --------------- --------------- --------
7 93 828 (4%)
Operating costs and cost of sales
Non-sales (425) (357)
Sales (222) (272)
----------------------------------------------------- --------------- --------------- --------
(647) (629) (3%)
Surplus on disposal of fixed assets and investments 7 3 51
Share of profits from joint ventures 2 4 26
Change in value of investment property (2) -
----------------------------------------------------- --------------- --------------- --------
Operating surplus 241 276 ( 13 %)
Net interest charge (103) (76)
Other finance income/ (costs) - -
Taxation - 1
----------------------------------------------------- --------------- --------------- --------
Surplus for the period after tax 1 38 201 ( 31 %)
----------------------------------------------------- --------------- --------------- --------
EBITDA and Net Cash Interest Paid
2022 Q3 (GBPm) 2021 Q3 (GBPm) Change
---------------------------------------- --------------- --------------- -------
Operating surplus 241 276
Change in value of investment property 2 -
Amortised government grant (19) (1 9 )
Depreciation 76 71
Impairment ( 7) -
Capitalised major repairs (78) (4 1 )
---------------------------------------- --------------- --------------- -------
EBITDA 215 2 87 (25%)
---------------------------------------- --------------- --------------- -------
Net interest charge (103) (76)
Capitalised interest (32) (36)
---------------------------------------- --------------- --------------- -------
Net cash interest paid (135) (112) (21%)
---------------------------------------- --------------- --------------- -------
Statement of Financial Position
2022 Q 3 3 1 March 2022 Change
(GBPm)
(GBPm) (GBPm)
-------------------------------------------- --------- ----------------- --------
Housing properties 11,332 11,0 26 306
Other fixed assets 86 8 5 1
Investments 1,6 74 1,728 (54)
Net current assets 587 747 (160)
-------------------------------------------- --------- ----------------- --------
Total assets less current liabilities 13,679 13,586 93
-------------------------------------------- --------- ----------------- --------
Loans due > one year 5,493 5,521 (28)
Unamortised grant liabilities 2,069 2,083 (1 4)
Other long-term liabilities 392 39 5 (3)
Capital and reserves 5,725 5,5 87 138
-------------------------------------------- --------- ----------------- --------
Total non-current liabilities and reserves 13,679 13,586 9 3
-------------------------------------------- --------- ----------------- --------
Non-Sales Activities
2022 Q3 2021 Q3 Change (GBPm)
(GBPm) (GBPm)
---------------------------------------- --------- -------- --------------
Net rents receivable 509 482 27
Charges for support services 9 9 -
Amortised government grants 1 9 19 -
Other income 1 6 12 4
---------------------------------------- --------- -------- --------------
Turnover 553 522 31
--------- -------- --------------
Management costs (61) (48) (1 3 )
Service costs (78) (68) (10)
Maintenance costs (173) (138) (35)
Support costs (10) (10) -
Depreciation & impairment (77) (71) (6)
Other costs (26) (22) ( 4)
---------------------------------------- --------- -------- --------------
Operating costs (425) (357) (6 8 )
Surplus on disposal of fixed assets 73 51 22
Change in value of investment property (2) - ( 2)
---------------------------------------- --------- -------- --------------
Operating surplus 1 99 216 ( 17)
---------------------------------------- --------- -------- --------------
Arrears
Current tenant arrears for all tenures are at 5.70% (as at 31
March 2022: 5.61%).
Sales Activities
The cost of sales is inclusive of capitalised interest and
overhead costs:
2022 Q3 (GBPm) 2021 Q3 (GBPm) Change (GBPm)
-------------------------------------- --------------- --------------- ------------------
Property sales income 221 198 23
Land sales income 1 9 108 (89)
-------------------------------------- --------------- --------------- ------------------
Turnover from sales (excluding JV's) 240 3 06 (66)
Cost of property sales (180) (177) (3)
Cost of land sales (26) (71) 45
Operating costs (23) (24) 1
Impairment 7 - 7
-------------------------------------- --------------- --------------- ------------------
Total costs (excluding JV's) (222) (27 2 ) 50
-------------------------------------- --------------- --------------- ------------------
Operating Surplus (excluding JV's) 18 34 (16)
-------------------------------------- --------------- --------------- ------------------
Joint venture turnover 228 1 79 49
Joint venture cost of sales (197) (148) (49)
Joint venture operating costs (7) ( 5) ( 2)
Impairment of investment in JV's - - -
-------------------------------------- --------------- --------------- ------------------
Share of profits from joint ventures 2 4 26 (2)
-------------------------------------- --------------- --------------- ------------------
AVERAGE SELLING PRICE
The average selling price, including JVs, for outright market
sales during the financial year to date was GBP528k (2021 Q3:
GBP488k). 43% of outright market sales, excluding JVs, were
conducted under Help to Buy (2021 Q3: 57%). The average selling
price of first tranche shared ownership sales during the financial
year to date was GBP393k (2021 Q3: GBP412k) that reflects
increasing activity in the North-West with an average first tranche
sale of 36% (2021 Q3: 34%).
SALES MARGINS
The cost of sales is inclusive of capitalised interest and
overhead costs but excludes impairment:
Shared Outright Land Sales Outright Sales (JV's) 2022 Q3 2021 Q3 Change
Owner- Sales (Non-JV)
ship
(GBPm) (GBPm) (GBPm) (GBPm) (GBPm) (GBPm)
--------------------- -------- ---------------- ----------- ---------------------- -------- ---------- -------
Turnover 111 110 19 228 468 485 (17)
Cost of sales (97) (83) (26) (197) (403) (396) ( 7 )
--------------------- -------- ---------------- ----------- ---------------------- -------- ---------- -------
Gross profit 14 27 (7) 31 65 89 ( 24)
--------------------- -------- ---------------- ----------- ---------------------- -------- ---------- -------
Gross EBITDA margin 13% 2 5 % - 11% 14% 18% (4%)
--------------------- -------- ---------------- ----------- ---------------------- -------- ---------- -------
Operating costs (8) (8) (8) (6) (30) (29) (1)
--------------------- -------- ---------------- ----------- ---------------------- -------- ---------- -------
Operating surplus 6 19 (15) 25 35 60 (25)
--------------------- -------- ---------------- ----------- ---------------------- -------- ---------- -------
Net EBITDA margin 5% 17% - 11% 7% 12% (5%)
--------------------- -------- ---------------- ----------- ---------------------- -------- ---------- -------
UNSOLD STOCK
As at 31 December 2022, L&Q, including joint ventures, held
1,318 completed homes as unsold stock with a projected revenue of
GBP190m. Projected revenue for shared ownership assumes a first
tranche sale of 25%.
Of the total unsold stock, 16% has been held as stock for less
than one month and 80% is for shared ownership, a tenure where we
would expect to continue to show a higher comparative level of
unsold stock due to bulk handovers in short time periods and
limitations to pre-sale meaning gradual sales rates. In the year to
date, L&Q has handed over 1,157 and sold 802 shared ownership
homes.
L&Q's forward order book excluding joint ventures consists
of 64 exchanged homes with projected revenue of GBP18m and 205
reservations with projected revenue of GBP35m.
Tenure Projected Revenue No. of Homes <1 Month 1-3 Months 3-6 Months 6-12 Months >12 Months
(GBPm)
------------------- ------------------ ------------- --------- ----------- ----------- ------------ -----------
Shared Ownership 114 1 ,058 1 37 1 36 181 3 90 214
Outright Sale
(non-JV's) 50 1 19 12 23 32 13 39
------------------- ------------------ ------------- --------- ----------- ----------- ------------ -----------
Total excluding
JV's 164 1,177 149 159 213 403 253
Outright Sale
(JCA's) 5 55 54 - - - 1
Outright Sale
(JCE's) 20 86 2 6 48 9 21
------------------- ------------------ ------------- --------- ----------- ----------- ------------ -----------
Total Joint
Ventures 25 141 56 6 48 9 22
------------------- ------------------ ------------- --------- ----------- ----------- ------------ -----------
Total Unsold Stock 190 1,318 205 165 261 412 275
------------------- ------------------ ------------- --------- ----------- ----------- ------------ -----------
NET DEBT AND LIQUIDITY
As at 31 December 2022, net debt (excluding derivative financial
liabilities) was GBP5,377m (as at 31 March 2022: GBP5,314m) and
available liquidity within the group in the form of committed
un-drawn revolving credit facilities and non-restricted cash was at
GBP1,154m (as at 31 March 2022: GBP1,179m). Approximately 54% of
L&Q's loan facilities and 65% of drawn loan facilities are at a
fixed cost. L&Q has GBP571m of debt maturities within the next
12 months (GBP376m drawn) with indicative terms agreed to extend
GBP550m of debt facilities for a weighted duration of 5-years.
UNENCUMBERED ASSETS
2022 Q3 31 March 2022
---------------------------------------------------------------------------- --------- --------------
No. of homes under management 120,570 118,434
No. of social housing homes provided as collateral against debt facilities (57,220) (59,258)
No. of private rented homes provided as collateral against debt facilities (1,295) (1,107)
---------------------------------------------------------------------------- --------- --------------
Total no. of unencumbered homes under management 58,515 58,069
% of homes under management held as collateral against debt facilities 49% 51%
Unencumbered asset ratio(12) 45% 44%
---------------------------------------------------------------------------- --------- --------------
L&Q CREDIT RATINGS
As at date of trading statement release:
Rating Agency S&P Moody's Fitch
------------------------- ------------ ------------ ------------
Long-term credit ratings A-/Negative A3/Negative A+/Negative
------------------------- ------------ ------------ ------------
On 30(th) January 2023, Moody's lowered its Base Case Assessment
of L&Q from Baa1 to Baa2 and affirmed the final rating at
A3/Negative.
Notes:
(1) Operating surplus - change in value of investment properties
- amortised government grant + depreciation + impairment -
capitalised major repairs +/- actuarial losses/gains in pension
schemes
(2) EBITDA / (turnover + turnover from joint ventures -
amortised government grant)
(3) EBITDA from non-sales activities / turnover from non-sales
activities
(4) Gross profit from sales + impairment / turnover from sales
including joint ventures
(5) Operating surplus from sales + impairment / turnover from
sales including joint ventures
(6) EBITDA / net cash interest paid
(7) EBITDA from social housing lettings / net cash interest
paid
(8) Net debt (excluding derivative financial liabilities) /
total assets less current liabilities
(9) Gross debt / EBITDA
(10) Sales turnover (including joint ventures) / (turnover plus
turnover from joint ventures)
(11) Capitalised development expenditure + acquisition of
investment property + purchase of other fixed assets
(12) 100% less (loans due after more than 1 year + derivative
liabilities + unamortised grant liability) / total assets less
current liabilities
This trading update contains certain forward-looking statements
about the future outlook for L&Q. Although the Directors
believe that these statements are based upon reasonable
assumptions, any such statements should be treated with caution as
the future outlook may be influenced by factors that could cause
actual outcomes and results to be materially different.
For further information, please contact:
investors@lqgroup.org.uk
James Howell, Head of External Affairs 020 8189 1596
www.lqgroup.org.uk
END
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