Inland Homes plc (AIM: INL), the brownfield site developer, housebuilder and regeneration specialist focused on the South and South East of England, today announces a trading update for the year ended 30 September 2021, ahead of its Preliminary Results which are expected to be announced in January 2022.
The Group has made significant progress this year in the delivery of its strategic priorities, namely reducing net debt and extending the maturity of the Group's borrowing facilities, maximising the value of land, growing its capital light asset management division and sustaining the high demand from its target first-time buyer market for high-quality homes.
· The Group finished the second half of the year strongly. The Group's trading performance for the year ended 30 September 2021 is expected to be in line with market expectations
· Significant 20 per cent reduction in net debt to £118.0m (30 September 2020: £148.2m)
· Record turnover of approximately £195m for this financial year (30 September 2020: £124m)
· Strong performances from the Group's land and asset management divisions
· Reflecting the strong demand for Inland's high quality affordably priced homes, turnover for the housebuilding division has more than doubled to approximately £56.5m (30 September 2020: £23.8m)
· 216 private home completions at an average selling price of £262,000 (30 September 2020: 96 private homes at an average selling price of £240,000)
· Income from the Group's partnership housing division is substantially ahead of the previous year (30 September 2020: £51.8m). The Group's forward order book for partnership housing increased by 56 per cent to £164.7m (30 September 2020: £105.8m)
· Significant progress within the asset management division, including two separate land sales on behalf of the project investors at the former Homebase site in Walthamstow
· Planning consent achieved for 1,317 plots across three sites, including 583 units at the former Homebase, Walthamstow and approximately 700 units at Gardiners Park Village, Basildon
· Strong sales performance with 383 residential home completions (216 in the Group and 167 in joint ventures) and a net weekly reservation rate per active site of 1.05 over the year (30 September 2020: 226, 0.69)
· Sustainability continues to be a key focus for the Group, and the development of an Environment, Social and Governance Framework that brings together high-level commitments alongside targets to reach net zero is a core priority.
Stephen Wicks, Chief Executive, commented:
"The Group has made significant progress in delivering its key strategic objectives. Net debt has decreased substantially and we continue to look for opportunities to deliver value from our considerable landbank.
"We continue to see sustained demand from investors, build to rent operators, registered providers and private house buyers for our land, the new homes we build and the Group's planning and building expertise.
"We look forward to reporting further progress on our strategic priorities in the year ahead."
Financial and operational highlights
The Group finished the second half of the financial year strongly, with record turnover for the year under review of approximately £195m (30 September 2020: £124m). The land division, which is the heart of the Group's business, performed well and the Preliminary results will reflect the sale of the first two phases at Inland Homes' flagship development at Wilton Park, Beaconsfield.
Our asset management business continues to produce excellent results and whilst management fees were slightly lower than the comparative period (30 September 2020: fees £24.4m), this part of the business contributed extremely healthy gross margins. Revenue from our partnership housing contracts will be substantially ahead of last year (30 September 2020: £51.8m) and turnover from our housebuilding activities, reflecting the strong demand for the Group's high quality affordably priced homes, has more than doubled year-on-year to approximately £56.5m (30 September 2020: £23.8m).
Further decrease in net debt
The reduction of net debt has been a priority and the Group is therefore pleased to report that as at 30 September 2021, net debt had fallen to £118.0m (30 September 2020: £148.2m). The 20 per cent year-on-year reduction has been driven by the sale of residential plots, private home sales predominantly from our large, flatted developments and the first sales of the existing residential properties at Wilton Park, formerly occupied by MOD service personnel.
The reduction in net debt has meant that our net borrowing costs are lower than last year (30 September 2020: £8.1m) and central overheads are substantially lower than last year (30 September 2021: £12.6m). As a result, the Group's trading performance for the year ended 30 September 2021 is expected to be in line with market expectations.
Inland's flagship development at Wilton Park, Beaconsfield is initially set to provide 304 new homes and related community facilities. The results for the land division highlighted above reflect the sale of Phases II and III, comprising a total of 90 plots during the year. The Group recently announced the granting of planning consent, subject to the signing of a Section 106 agreement, at its 54-acre site at Gardiners Park Village, Basildon. The consent enables the delivery of up to 700 new homes, together with 25,000 square metres of commercial space, a new school and community facilities. More than 30 per cent of the new homes will be much needed affordable housing, which is being delivered in partnership with Homes England. The estimated gross development of the site is in excess of £200m and construction of the first phase of 74 new homes will commence 2022.
During the year, Inland Homes concluded the sale of a 105-bedroom hotel at its Wessex Hotel site in Bournemouth to Aviva for £13.2m. In addition, the Group has also constructed 94 apartments at this renowned seaside destination and at the year-end date, 64 sales had been completed.
Progress continues at the Group's joint venture development at Cheshunt Lakeside, which will transform the site and has a masterplan consent for 1,725 new homes, new commercial space, other related community amenities and a new school. Discussions continue with a number of interested parties for the sale of the next phase of 205 plots.
The Group has built a land portfolio that presents opportunities in the short, medium and long term. It consists of 10,055 plots (30 September 2020: 11,045 plots), of which 3,689 have planning consent (30 September 2020: 2,470). 3,736 plots are within the strategic land portfolio of longer-term opportunities (30 September 2020: 2,795), the majority of which are held by way of discount to market value options.
During the current financial year, the Group achieved planning consent on 1,592 plots (2020: 112) and sold 111 plots (2020: 107 plots).
Investors in projects within the Group's asset management division benefit from Inland Homes' expertise and experience in identifying and securing attractive, viable sites and achieving planning consent on these. The capital light nature of this funding model, together with the management fees earned at various milestones of the project (including the successful gaining of planning permission), enable the Group to generate attractive and significant returns.
The asset management activity benefits Inland Homes in a number of ways: it optimises the planning expertise within the Group; it significantly reduces the capital investment, and it enables Inland Homes to earn management fees as the various defined milestones are achieved. The capital required for these projects is sourced from external investors, who earn a priority return on the capital invested normally on a fixed coupon basis. One of the principal risks for the Group with these projects is delays to the anticipated timetable. Typically, these transactions are structured so that any debt incurred is generally non-recourse to the Group.
The Group currently has six active projects within its asset management division. These have the potential to deliver 3,270 new homes (30 September 2020: 3,100). Inland Homes have submitted a planning application on the 36-acre site Cavalry Barracks in Hounslow, which is one of the largest brownfield sites in London, with an estimated gross development value of £600m. Planning permission is currently expected in early 2022. Planning consent was achieved for 583 homes at the Group's former Homebase site in Walthamstow in April 2021. Following site demolition and other preparatory works, construction has just started on the project, which is expected to be completed in 2025. The Group recently announced the sale of 228 plots to the charitable housing association, Newlon Housing Trust for a consideration of £22.5m. The houses on these plots will be built by the Group, the contract value being £42.4m. As at 30 September 2021 the Group has earned a total of approximately £20.0m in fees for the services it has provided on this project.
In addition, the Group has also exchanged contracts for the sale of 355 residential plots (173 completed and 182 due to complete by September 2022) at the same site to the Sigma Capital Group, the leading provider of build-to-rent housing. Inland Partnerships has secured the contract to build these homes, in what is the largest partnership housing contract secured by the Group to date, with a value of £88.9m.
The Group has also recently announced a resolution to grant planning permission, subject to the signing of a section 106 agreement, for a mixed-use scheme of 380 new homes, including 103 affordable new homes and 930 square metres of commercial space, in Dagenham Dock. This strategically important site in the Borough, which lies adjacent to Dagenham docks, will provide a new gateway to the area and act as a catalyst for the regeneration of south Dagenham.
Partnership housing contract income
There has been a substantial increase in the Group's partnership housing contract income, driven by the demand from affordable housing providers and build-to rent operators. The number of partnership homes under construction amounted to 1,257 (30 September 2020: 1,302).
Inland Homes has a contract with Clarion Housing Group for the construction of 325 residential units at Merrielands in Dagenham. Handover of 63 of the completed units is due to take place shortly.
Inland Homes continues to proactively work towards improving its commercial delivery and operational efficiency to push up its margins. As previously reported, unforeseen costs, cost inflation and extended construction periods will continue to affect margins in this division in the coming year.
The Group's forward order book for partnership housing increased to £164.7m (30 September 2020: £105.8m), with Inland Partnerships securing two build contracts at Walthamstow, totalling £131.1m.
The Group achieved significantly more private home completions during the year than the comparative period, 216 in aggregate (2020: 96), at an average selling price of £262,000 (2020: £240,000). A further 167 private home sales (2020:130) were sold across sites held with our joint venture partners. Together, the weekly net reservation rate per active sales outlet was 1.05 for the year (2020: 0.69). The margins on this segment have also been affected by unforeseen costs, cost inflation and extended construction periods partly due to delays in delivery of materials and shortage of labour supply.
The Group continues to deliver on its strategic objectives:
Reduction of net debt
The decisive action taken by the Group to reduce costs and preserve cash during the year have been effective and net debt at 30 September 2021 amounted to £118m (30 September 2020: £148.2m), a 20 per cent reduction.
Optimising the returns from its valuable land bank
Inland Homes' land bank is the foundation of the business. The Group looks to achieve a balanced return over the short, medium and long term.
At 30 September 2021, the gross development value of the portfolio was £3.0bn (30 September 2020: £3.1bn).
Growing the capital light asset management business
In recent years we have been expanding our asset management division, where typically much of the capital for the project is sourced from external investors. The Group enters into a planning and management services agreement which typically requires the procurement of a relevant site, obtaining planning consent using our considerable experience in this field, and proposing a plan for the disposal of the site, normally once planning permission has been secured. As the projects are capital light (where our skills and expertise are the service), the schemes can generate significant and attractive returns.
Maximising the value of the land we own or control
The decision to sell, develop or partner with third parties is based on a site-by-site assessment of which activity will deliver the best returns, subject to the overriding cash requirements of the Group.
As at 30 September 2021, the Group has 1,547 units under construction (30 September 1,717). Of these, 1,257 (30 September 2020: 1,302) are being built on behalf of affordable housing providers and built to rent operators through Inland Partnerships.
Delivering homes which meet the market's needs
Our high-quality, award-winning homes remain in reach of our target first time buyer market, with high demand sustained across the reporting period. In the year, the Group received a number of prestigious industry awards including 'Private Developer of the Year' at the First Time Buyer Readers' Awards, the WhatHouse? Gold Award for Best Regeneration scheme, and 'Best UK Mixed Use Development' at the International Property Awards. The Group completed 383 homes (including joint ventures) at an average selling price of £260,000.
One of the key strategic objectives of the Group is to reduce net gearing. The Board will look to resume the payment of dividends once this objective has been achieved.
Environmental, Social and Governance
Inland Homes is committed to ensuring that our land, housebuilding and partnership housing activities leave a positive and lasting legacy. As specialists in brownfield site regeneration, the Group has a proud history of adding value and applying our expertise in land remediation to allow the Group to take derelict land and regenerate it for the construction of new homes and the creation of new communities.
As a responsible business and against the broader backdrop of an escalating global climate crisis, we continue to build on our sustainability credentials and embed ESG in every aspect of what we do. The Group's ESG Framework combines targets, metrics and ambitions in each area, demonstrating our commitment to growing the business responsibly and mapping our journey to net zero carbon emissions.
The Group continues to work on initiatives to reduce net gearing and to crystalise value from its land bank to drive returns for shareholders.
The fundamental shortage of new homes in the South and South East of England continues and the interest from financial institutions in the build to rent market remains strong. Having delivered a significant reduction in debt and implemented measures to improve margins across the Group's housebuilding activities, Inland Homes is well placed.