Housing market in Ireland remains characterised by continuing structural undersupply and strong, mortgage-backed demand boosted by increased savings over the last 12 months.
Continued investment in our business throughout 2020 which will support the next phase of our growth.
Growth ambitions underpinned by a c. 16,800 unit landbank across 36 residential development sites, over 90% of which are located in the Greater Dublin Area (“GDA”).
2,500 closed sales target by the end of 2022, including c. 950 - 1,050 closed sales in 2021 assuming no further Covid-related site closures after 6 April 2021.
Current closed and forward order book of new homes underpins growth for 2021 with an underlying margin comfortably higher than our reported margin in 2020.
H2 2020 private starter homes average weekly sales rate was 2.8 sales per active outlet, increasing to 3.9 sales for newly launched schemes.
Significant opportunities in the multifamily private rental sector (“PRS”) market with Cairn uniquely well invested to deliver completed product to market.
2,000 people across our supply chain will return to work with the anticipated reopening of our active sites on 6 April 2021.
Focus on driving margin improvement and return on capital employed (“ROCE”) as the business scales.
Intentions and timings on reinstatement of capital distributions will be outlined when we announce our 2021 interim results.
c. €350 - €400 million free cash generation between 2021 and 2023 as our landbank unwinds. Approach to capital allocation will underpin the long-term sustainability of our business and ensure we can work towards building an efficient balance sheet, while at the same time returning capital to shareholders.
With our approach to sustainability and our focus on innovation informing both our construction activities and our design-led approach, the foundations are laid for Cairn to be the leading homebuilder in Ireland into the long-term. Commenting on the housing crisis, Michael Stanley, Co-Founder and CEO, said:
“Our housing crisis has now further deteriorated. As an appropriate response to any crisis, key stakeholders, whether in the private or public sector, urgently need to respond and be encouraged and supported to deliver homes for the over 500,000 people in Ireland today who have little or no prospect of affordable home ownership. All delivery platforms working in parallel can resolve this problem.”
Our scaled business and operating platform is prepared for growth, supported by our strong balance sheet and significant available liquidity. Mortgage-backed demand, particularly from first time buyers for our competitively priced starter homes, has been resilient and we expect the PRS market to continue to remain a significant investment asset class in 2021 and beyond. Government initiatives around shared-equity loans and affordable housing will give much needed support to the c. 575,000 people in Ireland who earn between €50,000 and €80,000 annually and cannot access social housing. With Cairn’s scale, capability and low cost landbank, we are working on a number of very innovative initiatives in this area. We are confident that we can deliver high quality new homes at great value for money with relevant affordable housing partners and stakeholders. Overall, we remain very positive and ambitious for our future growth prospects.
Our year to date closed sales and current forward sales pipeline is 925 new homes as at 3 March 2021 with a net sales value of €307 million, notwithstanding five months of limited sales activity since March 2020 during two separate lockdowns. With this strong sales momentum, and having invested heavily in our business throughout 2020, our focus is firmly set on growing our business and our annual sales run-rate in the medium-term.
Cairn anticipates that construction sites will fully reopen in Ireland on 6 April 2021 and is planning to commence construction on up to seven new sites this year. Our construction sites have been closed since the start of the year and assuming they fully reopen on 6 April 2021, Cairn’s construction activities will be limited to just over 8 months in the current year. This will have an impact on the number of new homes which we will be able to build and sell in 2021.
At the start of the year and before the current lockdown, the Company anticipated delivering 2,500 closed sales between 2021 and 2022. Cairn remains confident that over this timeframe to the end of 2022, our two year target of 2,500 closed sales is achievable in a c. 20 month production cycle. Assuming sites reopen therefore on 6 April 2021, we expect to deliver c. 950 – 1,050 closed sales this year and despite ongoing pandemic related costs in the current calendar year, a c. 18% gross margin in 2021. Within the balance of the 2,500 closed sales which will be delivered in 2022, we expect that gross margin to be c. 19% next year.
The Company estimates it will generate c. €350 - €400 million of free cash between 2021 and 2023. This estimated free cash generation is after significantly increasing WIP spend to support our growth and is before any capital allocation considerations, including reductions of current debt, future dividends or strategic land acquisitions. Balancing investing for strategic growth in our business with the importance of supporting a progressive distribution policy, the Board will consider the reinstatement of capital distributions later this year. Further details will be provided when we announce our 2021 interim results.