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Major London landlord expects capital expenditure to halve by 2026
A major London landlord has revealed that its capital expenditure is expected to fall by around 50% at the end of the financial year in March 2026.
L&Q told the stock market that its capital expenditure is expected to peak in this financial year as it focuses on its existing homes and looks to reduce risk across the business.
The Q2 trading update for the six months to the end of 30 September 2023 show that L&Q’s turnover was down from £533m to £506m compared to the same period last year.
Its operating surplus was also reduced by £14m to £158m.
The 109,000-home landlord’s earnings before interest, taxes, depreciation and amortisation (EBITDA) was reduced to £150m from £164m, on a margin of 27%. At the same time, social housing lettings interest cover stood at 116%. Sales as a percentage of turnover fell from just over half to 30%.
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Including through joint ventures, L&Q completed 1,350 homes over the reported period, down from 2,151, 67% of which was social housing. Starts hit 228, down from 1,173.
The latest update follows on from August, when the G15 landlord predicted a 60% year-on-year fall in starts as it focuses on its existing development pipeline and stock.
Looking ahead, the association has a total development pipeline of 23,948 homes, of which 84% are currently on site.
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 £2.8bn, reduced from a previous figure of £4bn.
L&Q has also lowered its guidance on key financial metrics due to a £10m projected accelerated investment in its existing homes, and around £20m in deferred expected profits on the sale of fixed assets that are outside its geographical focus.
Plus, there is a £10m increase in interest in recognition of prolonged and higher interest rate expectations.
Waqar Ahmed, group director of finance at L&Q, said: “L&Q’s Q2 trading results continue to reflect our stated objectives to divert a greater level of expenditure towards our residents’ existing homes through our £3bn major works investment programme to address our strategic priorities of health and safety, quality of homes and improving services.
“In the year to date we have invested £156m in our maintenance programme which continues to deliver major internal and external works inclusive of measures to address damp and mould, fire safety, energy efficiency and wide-ranging estate improvements. We have also made significant progress on our transformation programme to deliver a simplified target operating model.
“Our commitment to lower our financial risk profile and reduce earnings volatility is reflected by the declining approved development pipeline, lower year-on-year housing starts and completions, and the rationalisation of stock outside our geographical core.”
Mr Ahmed said the landlord had implemented deleveraging plans and had lowered guidance on gross capital expenditure to £725m from £850m.
He added: “On a look-forward basis, capital expenditure is expected to peak this financial year and fall by c. 50% by the financial year ending 31 March 2026.
“This means that risk within the development pipeline, including inflation, has already been substantially absorbed. Whilst the outright sales market remains subdued, our exposure continues to decline. We remain confident in the shared ownership market that [it] is competitive, well-positioned and resilient despite the ongoing uncertainty in the housing market.”
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