London & Quadrant Housing Trust Trading Update for the period ending 30 September 2022

London & Quadrant Housing Trust ('L&Q') is today issuing its consolidated unaudited trading update for the six months ended 30 September 2022 ('2022 Q2'). All statement of comprehensive income comparatives are to L&Q's consolidated unaudited prior year equivalent period being the six months ended 30 September 2021 ('2021 Q2').

HIGHLIGHTS

·    There are 120,270 units in management (as at 31 March 2022: 118,434)

·    L&Q has completed 2,151 new residential homes (2021 Q2: 1,997)

·    Turnover was £533m (2021 Q2: £535m)

·    EBITDA¹ was £164m (2021 Q2: £205m)

·    EBITDA margin² was 23% (2021 Q2: 32%)

·    EBITDA margin (excluding sales)³ was 36% (2021 Q2: 51%)

·    Gross sales EBITDA margin⁴ was 15% (2021 Q2: 17%)

·    Net sales EBITDA margin⁵ was 9% (2021 Q2: 11%)

·    EBITDA interest cover⁶ was 194% (2021 Q2: 276%)

·    EBITDA social housing lettings interest cover⁷ was 140% (2021 Q2: 173%)

·    Operating surplus was £172m (2021 Q2: £193m)

·    Debt to assets⁸ was 39% (2021 Q2: 41%)

·    Sales as a % of turnover¹⁰ was 51% (2021 Q2: 48%)

Commenting on the results Waqar Ahmed, Group Director, Finance said:

"L&Q's operating performance and unaudited Q2 trading results are broadly line with expectations. To offset the latest market inflation and interest rate assumptions, L&Q has lowered its guidance on gross capital expenditure through to the year ending 31 March 2023 resulting in a corresponding reduction in guidance for net debt. However, we expect short-term interest costs to be materially higher than our previous expectations meaning that we have lowered our EBITDA / interest guidance.

In the year-to-date, EBITDA and margins from property sales activities have delivered marginally ahead of expectations, most notably due to higher than expected first tranche sales percentages on shared ownership. However, sales volumes are below expectations due to handover delays and EBITDA generated from land sales has been impacted by timing delays. Those timing delays are expected to be reversed by year end.

Whilst our EBITDA guidance for the remainder of the financial year remains unchanged, wider economic uncertainty, a continuation of financial market volatility and its impact on the mortgage market, supply chain constrains and the pressures on cost of living caused by inflation and interest rates have the potential to impact our residents, those looking to purchase our properties and our forward guidance.

During Q2 2022, L&Q followed up on its commitment to measure and report on progress against specific sustainability objectives in accordance with the Sustainability Reporting Standard for Social Housing, a key part of our strategy to build transparency and collaboration. L&Q's Sustainability Report and Performance Tables can be found at the following link: www.lqgroup.org.uk/about-landq/sustainability-at-lq "

FORWARD GUIDANCE FOR THE YEAR ENDING 31 MARCH 2023

The following includes adjustments made to our inflation and interest rate forecasts for the remainder of the financial year based on current market expectations.

We project EBITDA to be in the range of £330m to £350m (unchanged) and gross capital expenditure¹¹ to be in the range of £850m to £900m (previous guidance £900m to £950m). Included within our EBITDA projections is a c.30% increase in total maintenance costs including c.£45m 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 £260m to £280m (unchanged). Net debt is expected to be in the range of £5.5bn to £5.6bn (previous guidance £5.6bn to £5.7bn).

L&Q has lowered its forward guidance for EBITDA interest cover (previous guidance 200% - 220%) and Gross debt to EBITDA (previous guidance 17x - 18x). All other guidance for financial metrics is unchanged from our last trading update.

HOUSING COMPLETIONS

L&Q, including joint ventures, has completed 2,151 (2021 Q2: 1,997) residential units in the financial year to date. This comprises of 1,474 (2021 Q2: 1,227) completions for social housing tenures and 677 (2021 Q2: 770) completions for market tenures. During that same time 1,173 new build residential units commenced on site (2021 Q2: 1,190).

DEVELOPMENT PIPELINE

L&Q, including joint ventures, is operating from 185 (2021 Q2: 199) active sites. L&Q has approved an additional 952 (2021 Q2: 257) residential units during the financial year to date bringing total units in the approved development pipeline to 28,341 (2021 Q2: 31,739), of which 75% are currently on site. Of the units approved in the development pipeline 55% are for social housing tenures and 45% are for market tenures. L&Q holds a further potential 75,551 (2021 Q2: 81,102) 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 £4.0bn (2021 Q2: £4.9bn) of which £3.4bn (85%) is currently committed (2021 Q2: £4.1bn).

UNAUDITED FINANCIALS

The unaudited financials exclude further adjustments that are subject to audit review.

Statement of Comprehensive Income

EBITDA and Net Cash Interest Paid

Statement of Financial Position

Non-Sales Activities

Arrears

Current tenant arrears for all tenures are at 5.85% (as at 31 March 2022: 5.61%).

Sales Activities

The cost of sales is inclusive of capitalised interest and overhead costs:

AVERAGE SELLING PRICE

The average selling price, including JVs, for outright market sales during the financial year to date was £538k (2021 Q2: £504k). 43% of outright market sales, excluding JVs, were conducted under Help to Buy (2021 Q2: 83%). The average selling price of first tranche shared ownership sales during the financial year to date was £393k (2021 Q2: £407k) with an average first tranche sale of 36% (2021 Q2: 33%). The lower than comparative average selling price for first tranche shared ownership sales reflects a larger percentage of sales being conducted in the North-West of England.

SALES MARGINS

The cost of sales is inclusive of capitalised interest and overhead costs but excludes impairment:

UNSOLD STOCK

As at 30 September 2022, L&Q, including joint ventures, held 1,339 completed homes as unsold stock with a projected revenue of £211m. Projected revenue for shared ownership assumes a first tranche sale of 25%.

Of the total unsold stock, 15% 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. In the year to date, L&Q has sold 527 shared ownership homes and handed over 494 shared ownership homes.   

L&Q's forward order book excluding joint ventures consists of 91 exchanged homes with projected revenue of £23m and 294 reservations with projected revenue of £54m.

NET DEBT AND LIQUIDITY

As at 30 September 2022, net debt (excluding derivative financial liabilities) was £5,309m (as at 31 March 2022: £5,314m) and available liquidity within the group in the form of committed un-drawn revolving credit facilities and non-restricted cash was at £1,145m (as at 31 March 2022: £1,179m). Approximately 54% of L&Q's loan facilities and 64% of drawn loan facilities are at a fixed cost. L&Q has £10m of refinancing risk within the next 12 months.

UNENCUMBERED ASSETS

L&Q CREDIT RATINGS

As at date of trading statement release:

L&Q's credit ratings have been placed on negative watch as a direct result of the UK Sovereign rating being placed on negative watch by S&P, Moody's and Fitch. 

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