黑洞社区

Specialist first time buyer developer Pocket Living has fallen to a pre-tax loss of 拢18.9m after the business encountered build and planning problems on a number of its developments.

In accounts for the calendar year 2021, published on Companies House, Pocket Living Ltd, the London-based developer of 鈥渁ffordable鈥� small homes, reported the group loss on revenue of just 拢17.6m, down almost 70% from 拢56.2m the year before.

The loss is the third consecutive year of losses for the firm, which reported a 拢6.3m loss in 2020, as the pandemic hit, and a loss of 拢0.9m in 2019.

In comments contained in the accounts statement, the company鈥檚 co-founder and CEO, Marc Vlessing, said that recent trading conditions had been challenging, including as a result of the pandemic, with 鈥渓abour shortages and rampant cost inflation鈥�.

The loss for year includes the effects of a 拢10.3m 鈥渋mpairment charge鈥� taken in the year due to the impact of issues related to four individual schemes.

The statement also revealed the Group is in discussions with its majority shareholder, Related London Pocket Holdings Ltd 鈥� a firm owned by businesses controlled by US real estate magnate Stephen Ross 鈥� about a 鈥渞estructure鈥� of 鈥渂oth current and future investor loans鈥�, after the statement revealed a net deficit of 拢22.4m in Pocket鈥檚 balance sheet.

The bulk of Pocket鈥檚 拢10.4m write-down came from a 拢7.7m charge recorded on one scheme, Addiscombe Grove in Croydon, a 153-unit modular-build project with housing association Optivo that was ultimately delivered in March this year, two years late. The accounts said this delay resulted in a 鈥渟ignificant increase in finance costs鈥� resulting in a total scheme loss of 拢11.8m, of which 拢4.1m was charged to the business in the 2019 accounts, and 拢7.7m in this latest year.

Pocket did not say what caused the delay to the scheme, which was started on site in March 2018, and which Pocket said at the time would be built using modular technology 鈥渋n a quicker, less disruptive manner.鈥�

A further 拢1.3m charge was taken on the 78-home Harbard Close scheme which was originally being built out by contractor Shaylor before it fell into administration and had to be replaced by McLaren. Pocket鈥檚 account said this resulted in 鈥渁 previously profitable scheme becoming loss-making鈥�.

The final 拢1.3m of impairment charge to the accounts resulted from abortive costs for two schemes which the business was unsuccessful at achieving planning for.

Speaking to 黑洞社区鈥檚 sister title Housing Today, Marc Vlessing (pictured) admitted the accounts reflected a 鈥減articularly difficult鈥� period for the business given the problems at Addiscombe Grove, but that the firm remained 鈥渟olid鈥� and 鈥渕uch needed and much wanted and respected鈥�. He said the drop in turnover reflected the delays to the delivery of the Addiscombe Grove and Harbard Close schemes.

鈥淲e have a very clear brand, and a very good proposition, and everybody wants the product. [But] There will be some rough patches and there will be some bumps on the road,鈥� he said. 鈥淚 would say we鈥檒l look back upon the last four years of being a particularly difficult vintage for our company.鈥�

Vlessing refused to name the contractors involved in delivering the scheme, but said they were new partners that Pocket hadn鈥檛 used before.

He said: 鈥淵ou open relationships with new contractors based upon a certain level of trust. I would say that the trust that we placed in those operations was not returned.鈥�

Housing Today understands, from publicly available information, that the main contractor on the project was the Pickstock Group, and the modular supplier was Elements Europe. In a joint comment from the two firms, Simon Underwood, CEO of Elements Europe, which is part of the Pickstock Group  said: 鈥淭he substantial delays were within the main contractor鈥檚 [Pickstock鈥檚] critical path and the impact of Covid.

鈥淚 believe many things were suggested to reduce this delay including an alternative cladding solution that would have sped up the schedule significantly, but this was not embraced by Pocket Living.

鈥淓lements Europe鈥檚 modules were delivered early on in the construction phase and did not form part of the substantial critical delay.鈥�

Pocket鈥檚 accounts statement said that Pocket was 鈥渃urrently in discussions鈥� with its majority shareholder Related Pocket Holdings Ltd over a debt for equity 鈥渞estructure鈥� that was 鈥渓ikely to result in a mixed debt/equity funding structure which will convert part of the current inter-company debt to equity鈥�.

Pocket鈥檚 accounts said that when Related London鈥檚 financial position was taken into account, Pocket could be regarded as having a positive balance sheet of 拢24.5m. The accounts stated that Related has given assurance of financial support to the group for the foreseeable future, meaning auditors flagged no issues related to Pocket鈥檚 ability to continue as a going concern, despite the balance sheet deficit.

Vlessing told Housing Today the conversations with Related London should be regarded as a financial 鈥渞eset鈥� which will allow the next stage of growth at the firm, rather than a restructure to rescue it. He said the firm could live with its current balance sheet position, but that it wanted to improve it in order to attract new investment. 鈥淲e could easily just live with that for years to come,鈥� he said.

鈥淭he problem is growing and attracting the next layer of capital when you鈥檝e got a deficit, as a result of literally one big scheme going wrong,鈥� he said. 鈥淭hen, if you don鈥檛, reset the capital structure, lenders will look at your balance sheet and say 鈥榰ntil that problem is resolved, we鈥檙e not going to lend as much money to you as we were before鈥�, so you can鈥檛 grow.

鈥淭he company is absolutely solid, well founded, well supported, and we just need to present a balance sheet to the outside world which reflects the growth ambitions that we鈥檝e got.鈥�

Notwithstanding the problems identified with the Addiscombe Grove and Harbard Close schemes, the accounts statement said that the underlying performance of the business had otherwise been in line with expectations, with three planning consents achieved in 2021, and four further consents secured in 2022 so far.

The statement added that the business expected that the current financial year will also be loss-making, before the firm returns to profitability in 2023-25 as 鈥渢he majority of our committed pipeline sales come on to the market鈥�.