1. Keep Calm and Carry On? Robert Wassall Head of Social Housing
2. Keep Calm and Carry On? ‘Viability and Vitality’: Mervyn Jones ‘At the Heart of Housing’: Shelagh Grant ‘Build Now or Pay Later’: Orbit/Rowntree ‘Where next: Housing after 2015’: PWC/L&Q “Private landlord planning to shift into SH sector” “CEO says sector near cliff edge” “Regulator chair voices concerns for landlords” “International landlords could become reality” “Landlord heads for China for funds”
3. Keep Calm and Carry On?
4. Viability, Recovery andAsset ManagementMervyn Jones8thth July 2011 201118 November
5. Viability andVitality • Level of financial risk inherent in the activities that associations undertake • The risks are real and are likely to become more challenging • Where risks cause difficulty, there needs to be clarity about how these might best be managed • Active Asset Management can help mitigate risk and improve performance
6. Part OneTomorrow is notyesterday
7. Yesterday and •Many risks that associations will face in thetoday future are those they have faced in the past: • pursuit of aggressive development strategies • ineffective risk management • ineffective governance • fraud • challenging business models • treasury risk • complex regeneration models • complex structures or geography • product lines affected by market risk
8. Tomorrow •The world associations are operating in is changing significantly and this means: • There are new risks • some of the “normal” risks are intensified • the interactions between the various risks are becoming more complicated
9. Risks from • Discord in Boards about future strategyAffordable rent – Or even the 2012 rent increase • Misalignment of interests in Groups • Unknown reaction in Groups led by non-RPs • So, increased governance risk
10. Risks fromAffordable rent • Producing new homes with lower percentages of grant will result in increased gearing ratios • Changes may put pressure on key financial covenants - might stretch available security. • When looking to raise rents, associations will be subject to lenders’ assessments of exposure to new risks. These will include: – Affordability to households for whom the homes are intended – Volatility and depth of the market – Risks involved in changes to welfare benefits – Political risk of future rent control
11. Alternativebusinessdevelopment • Associations will have to decide how far they wish to keep developing new homes with lower levels of government grant. • If they choose not to, they may look for alternative business opportunities that have new and different risks • Haemorrhaging of talent from non- developing RPs
12. Increased • Fraud“normal risks” • High levels of cost inflation • Margin Calls • Refinancing risk • Repricing risk • Inability to meet higher levels of due diligence required – Asset registers • Failure to comply with property covenants and S106 • Pension deficits impacting Balance Sheets
13. Self-help • Associations have been too reliant on external agencies riding to their rescue • Associations need to be in the driving seat in sorting out own difficulties • Where problems materialise, boards must be smarter in devising solutions • Regulator’s role would be to intervene when self-help solutions fail
14. EffectiveGovernance? • Danger of putting too much focus on financial viability alone – effective governance crucial. • Current focus on signing up to “an appropriate code of governance” does not provide solid basis. • Are boards, and indeed executives, fully equipped with the skills to take the added commercial risks?
15. Smarter boards,smarter risk • Regular external challenge to governance tomanagement highlight symptoms of poor governance • TSA should more fully spell out expectations of boards where they encounter viability problems • Boards should target a level of surplus to create the right size of cushion for their risk exposure • Need to develop understanding for boards, landlords, tenants, regulator and other stakeholders, to allow a wider, better informed dialogue about viability and risk.
16. SingleAssociationTakeovers • To date the main solution for associations with viability problems has been transfer to another association, by merger or joining a group. • A single association takeover is still the most likely solution when speed is of the essence. • If time can be bought a more measured route to rescue becomes feasible. •Merger mania back?
17. New solutions • High RPI means unexpected increases in income – potential to create cushion • Strong growth in market rents • Continuing positive results from stock rationalisation- market for tenanted stock • Increased experience of managed work-outs • Increased interest in investment in residential portfolios amongst institutions and others
18. A radical option? • Associations may feel it is a good time to develop an independent approach to the rescue of troubled associations that does not rely primarily on the regulator or the government. – A radical option for the sector might be the development of a Central Housing Fund – Could this be a means of developing the co- regulatory aspects of regulation? • Alternatively, rescue funds are popular with Governments at the moment! • The FSA is consulting on requiring registered firms to file Recovery and Resolution Plans.
19. Managing assets • Associations will have to understand: – Local markets – The long term performance of their property portfolio – The investment performance of each individual property.
20. What is ActiveAsset • Measure the long term performance of yourManagement? properties • Use modelling techniques to analyse worth • Helps plan for conversion to affordable rent, investment, modernisation or replacement • Provides an objective baseline on which to make investment decisions • Generates candidate list for option appraisal • It’s a component of business planning
21. C ashflow C odeCandidate List of G asworks H ouse T rad G en ExNT (158) N PV pu 30yr -£3,435poor performing W oodnorth House T rad G en ExT DC (148) M alinslee1 Flat T rad G en ExT D C (18) -£3,346 -£3,303asset groups Shawbirch Flat T rad G en ExT D C (9) H ighSt Flat (+1xBung) T rad G en ExN T (176) -£3,272 -£2,800 M adleytrad Bung T rad G en ExN T (68) -£2,679 H ollinN dev Flat T rad G en ExT D C (4) -£2,472 H ollinsDev Flat T rad G en ExT D C (106) -£2,276 Buxton House T rad G en ExN T (84) -£2,063 Ironbge Bung T rad G en ExN T (28) -£1,770 R andlay Bung T rad G en ExT DC (19) -£1,503 H illslane House (+4xBung) T rad G en ExNT (149) -£1,479 Brookdev Bung T rad G en ExT D C (11) -£1,238 W ell3 H ouse (+3xBung) T rad G en ExNT (24) -£1,204 Lancaster House NT rad G en ExNT (121) -£1,203 W oodSouth H ouse T rad G en ExT D C (66) -£1,055 Lancaster House T rad G en ExN T (37) -£932 W ell2 Flat T rad G en ExN T (22) -£715 H adley5 H ouse T rad G en ExNT (38) -£555 H adley3 Flat T rad G en ExNT (23) -£507 Ardern Flat NT rad G en ExNT (14) -£473 Ket1 Bung T rad G en ExN T (47) -£293 M adeleyT D C Bung T rad G en ExT DC (45) -£291 D O N8 Bung T rad G en ExN T (15) -£49
28. Price by Total Bids; Price p uType of Type Total Bids £m Price p u UnitsPortfolio: General Needs £143.1 £64,827 2207 General Needs/SO £73.6 £49,234 1494Totals & GN/Sheltered £33.2 £34,234 969£ p.u. GN/Shlt/SO £8.8 £34,307 257 GN/Shlt/Sup £8.3 £16,532 504 GN/Shlt/Sup/SO £8.1 £43,335 188 GN/SO/Development Site £15.1 £50,980 297 GN/SO/Leasehold £6.0 £18,212 330 GN/Sup/SO £17.1 £56,457 302 GN/Supported £21.8 £54,721 398 Sheltered £26.9 £34,048 789 Supported £6.7 £54,836 122 Sum of Bid Total £368.6 £46,918 7857 Source:Savills
29. Price byType of Total Bids; Price p u By Region Total Bids £m Price p u UnitsPortfolio: East England £17.7 £49,385 358Totals & East Midlands £71.2 £50,329 1415 London £84.0 £58,996 1424£ p.u. North West £79.4 £34,707 2289 South East £43.4 £37,867 1146 South West £50.0 £64,723 772 West Mids £10.8 £48,132 225 York/Hmber £12.1 £53,028 228 Sum of Bid Total £368.6 £46,918 7857 Source:Savills
30. Uplift above EUVSHUplift Type % Upliftabove General Needs 31%EUVSH General Needs/SO 31% GN/Sheltered 49%By Type GN/Shlt/SO 16% GN/Shlt/Sup 5% GN/Shlt/Sup/SO 24% GN/SO/Development Site 39% GN/SO/Leasehold -29% GN/Sup/SO 25% GN/Supported 40% Sheltered 23% Supported 64% Overall 30% Source:Savills
31. Uplift Uplift above EUVSHabove By Region % Uplift East England 38%EUVSH East Midlands 36%by London 9%Region North West 40% South East 15% South West 58% West Mids 61% York/Hmber 28% Total Count of Bid Ref 30% Source:Savills
32. What if there is no • Homes under the hammermarket? • Market still strong
33. Part four:Restructuring anAssociation Restructuring an association might be appropriate where • the ‘worth’ of assets to the current landlord may be less than the ‘worth’ to another landlord or on the open market • transfer or disposal may generate value. •How to
34. Part four:Restructuring an This would need TSA involvement in:Association • Agreement of restructuring plan • Negotiation with funders • Liaison with HCA re grant intervention This may need ‘steady state’ associations to support meanwhile management through: • Funding arrangements • Temporary Group membership • Through an SPV
35. Unravelling •Potential obstaclesGroups • Third party approvals at an acceptable price • Unacceptable damage to other group members • Approval from a group member which it cannot give (for charitable, contractual or solvency reasons) • Tax liability • Pension liabilities • Staff transfers under TUPE. •But greater experience of collapsing Groups
36. Part four: Depending on the nature of the problem aRestructuring an restructure might involve:Association • Cost reduction • Income improvement • Redesignation of stock to different uses • Transfer of tenanted property to better placed landlords in return for value • As a last resort, decommissioning schemes and disposal as vacant, to realise the latent vacant possession value.
37. Part four: Part four explores “How To”Restructuring an • Recovery of failed projectsAssociation • Disposals and Transfers – Transfer of subsidiaries – Transfer or disposal of sufficient assets to leave a viable core business – Transfer or disposal of non-core product lines – Reduction of footprint by transfer of geographical asset groups – Complete transfer or disposal of all assets • Involving tenants • Meanwhile management • Winding up
38. New Rescuers? •Potential for investors to “buy” distressed RPs
39. “Making Affordable Rent Happen” At the Heart is Housing Shelagh Grant Chief Executive, The Housing Forum 8th November, 2011
40. About The Housing Forum “Campaigning for more and better homes”• Membership network spanning public and private sector – unique selling point is cross industry learning and influencing• A “mutual” organisation with industry based practical and business experience directed at industry and Government
41. List of Members Housing Providers A2 Dominion LHA-ASRA Group Affinity Sutton Group Longhurst Group bhpa Newham Homes Broadland Housing Group Newlon Housing Trust Bromford Housing Group North Hertfordshire Homes Connected Partnership Plus Dane Group East Midlands Housing Group Saxon Weald East Thames Group Southern Housing Group Eastbourne Homes Sovereign Housing Group Fusion21 Thames Valley Housing Association Gallions Housing Association The Guinness Partnership Grand Union Housing Group The Places For People Group Hackney Homes Thrive Homes Harvest Housing Group Town and Country Housing Group Hexagon Housing Association Walsall Housing Group Homes for Haringey WM Housing Group Jephson Housing Group Yarlington Housing Group
42. List of Members Developers, Housebuilders, Contractors Suppliers, Manufacturers Aggregate IndustriesArgent Plc Lovell Partnerships Akzo Nobel/ICI PaintsBreyer Group Mansell British Precast / ModernGalliford Try Mulalley and Co Masonry AllianceHiggins Construction Plc Osborne Excel IndustriesHill Partnerships Robert Woodhead Ltd ForticreteIan Williams Rydon Construction IG DoorsIgloo Regeneration Seddon Group K Panels LtdJones Homes Southdale Homes Kingspan PottonKeepmoat Thomas Vale Construction Marley Plumbing & DrainageKier United House Polypipe GroupLakehouse Wates Living Space Swish Building ProductsLand Securities Willmott Dixon Housing UK Timber Frame AssociationLeadbitter Group Wolseley
43. Who are the members? Specialist and Consultants 4i Solutions Inbuilt Airey Miller Partnership I.S.4 architecture plb Jon Watson Consulting Baily Garner MacConvilles BM3 Architecture Ltd Martin Associates Calfordseaden MJS Consultancy Conisbee NHBC Davis Langdon PML Group Design For Homes PRP Dickinson Dees Rider Levett Bucknall EC Harris Salford Centre for Research & Innovation Faithorn Farrell Timms The Concrete Centre HTA Trowers and Hamlins Ibis Project Services Waterstons
44. We are known for:• Networking and influencing – strong cross business linkage• Best practice and learning; demonstration projects; Skills Summits on Asset Management e.g. Procurement and Green Deal• Market awareness – monthly Round Table discussions on local housing business issues e.g. Hampshire in June with architecture plb• Date for your diary: 16th November 2011 South West Networking Conference at Exeter Race Course
45. Keep Calm ...• What can we expect?• Government’s housing strategy likely to say – increased housing supply is much needed – we are all getting older!• This to be market-driven• To be market led has to have conditions for private sector to succeed• NHBC’s statistics tell us that UK 10 year average is minus28% and much worse in some areas than others• Forecast of 115,000 completions in 2011/12 to be revised down
46. Regular Housing Forum Round Tables tell us:• Drive from “top” still needed• Concreting over green belt sensation has not helped• Geoff Rooker – ex-housing minister – 2% of land developed• Economic constraints on more s.106• Certainly for “community infrastructure” – impact could be equal to 40% cut in community infrastructure
47. Local Councils• Closer collaboration essential• Councils may be looking for longer term returns and will want standards and quality• Commuted sums or more homes?
48. On Affordable Homes...• Bidding oversubscribed and new entrants but 90% of the programme will still be delivered by housing associations• Market rent issues• “Bunching” of programme delivery and supply chain• BUT... Subsidised housing still needs a subsidy• WHY CARRY ON...?• Income needed for existing stock to fund improvements
49. Skills Summit Series• Highly popular – looking at all aspects of asset management including procurement, energy, environmental, etc.• Need to maintain value over time and offer a service• Housing associations can be more flexible in their financial plans• Lease-back arrangements, modernising the offer, private rental services• Take a longer term view• Greater commerciality
50. At the Heart is Housing “Making affordable rent happen” Housing Forum Working Groupchaired by board member John Cross, bphaConclusions:-
51. • Funding – appetite and risk – the future is institutional• A radical reshaping of housing associations to respond to the tectonic plate shifts• Planning and Land Policy
52. • New Homes Bonus – is a stimulus in some areas• In-Betweeners – the revival of our estates with career couples – is this going to happen?• How do you make your offer attractive?
53. • What are the specifications and standards in building going to be?• Energy and Code standards• Let’s not undo 15 years of good work!
54. • The future is now – University of Oxford report• A real opportunity for the industry to work together like never before• A new era of PPP• Make the economic links now• The Housing Forum’s next steps
56. NO FACTS, FIGURES, GRAPHS ANDTABLESRATHERSTATEMENTS HOPEFULLY TO PROMOTEDISCUSSIONBrian Everett, Operations DirectorBellway Housing Trust
57. Statement No. 1• Whatever happens with the Localism Bill, New Homes Bonus and the National Planning Policy Framework – the number of homes built will not increase until mortgages at higher loans to value become readily available.
58. Statement No. 2• House builders are, and will continue to, concentrate on margins, not numbers of homes built.
59. Statement No. 3• Government subsidy for affordable housing will not increase any time soon.
60. Statement No. 4• The Market has changed – owner occupation will not increase – Renting is here to stay and grow.
61. Statement No. 5• Shared ownership and equity loan products are not now tools to help people into full home ownership, they have become a tenure in their own right.
62. Statement No. 6• The distinctions between housing associations and house builders are, and will become, increasingly blurred. There will be new players.
63. and finally …• Which will happen first? A housing association buying a house builder or A house builder buying a housing association.
64. Paul Tennant Group Chief ExecutiveI will cover: Brief background of Orbit Context for our Future Future of our Organisations Transforming into our Future
65. Orbit Group A Federal Partnership37,000 homes£165m turnover1100 staffAssets of £1.5bn
67. Direction in the New World Direction Tradition al Progressi ve Return Risk RadicalThe choice we make will be aRole? spectrum to reflect circumstances and aspirations
68. Future of Organisations: Direction Become more commercial and/or to diversify operations further • Become more commercial in operations though not culture • Be less reliant on state support and seek new income sources • Develop new business models to transform offer • Extracting greater financial and social return from operations • A greater economic impact • Greater social impact/consumer impact • A repositioning of the sector and to make a case for their role • A future as self-sustaining organisations Be more aware of risk and the need to mitigate increasing risks • Inertia and inefficiency • Ensuring sustainability • Stigmatisation of the sector
69. Drivers of ChangeCurrent & future customersAffordable rents/capital reductionWelfare reformAusterity & value for moneyRegulation/self-determinationEvolving role of LA’s/communitiesSustainability/green economy
70. Change AgentsCustomer: services & standardsCommunities: role & investmentHomes: range & funding modelStructures: partnership & innovateFinance: income, funding, VFMOrganisation: culture, technologyEach organisation must assess what to transform to be successful
71. StrategiesImprove what we have/do nowExit or expand services/geographyIncrease income – revenue/capitalNew partnerships & venturesInfluence, promote our roleCulture and people development How we respond will define our success in the future
72. Transforming our Future: Making it Happen Leadership Skills • An imperative to transform • An entrepreneurial culture Shaping a New Role • Greater role in society • More proficient businesses A change in operations • Align to new world • A new set of outcomes A new message • Demonstrable change • A stronger narrative
73. Orbit: An organisation in transformationProgress since 2003Plans to 2013Orbit 2020 Project• Environment & Vision• Drivers & Change Agents• Strategies & OutcomesLeadership!
74. Transformation Process Environment Business Drivers Direction Change Agents OutcomesDeveloped among organisations across four counties
75. In SummaryThe world is radically changingOrganisations must transformRequire a different approach & roleAlign outcomes, operations & cultureLeadership is critical