Blake Lapthorn held

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 and
Asset Management
Mervyn Jones
8thth July 2011 2011
18 November

5. Viability and
Vitality • 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 One
Tomorrow is not
yesterday

7. Yesterday and •Many risks that associations will face in the
today 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 strategy
Affordable 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 from
Affordable 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. Alternative
business
development
• 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. Effective
Governance? • 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 to
management 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. Single
Association
Takeovers
• 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 Active
Asset • Measure the long term performance of your
Management? 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 ode
Candidate List of G asworks H ouse T rad G en ExNT (158)
N PV pu 30yr
-£3,435
poor performing W oodnorth House T rad G en ExT DC (148)
M alinslee1 Flat T rad G en ExT D C (18)
-£3,346
-£3,303
asset 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

22. Typical summary •
output

23. A Universe of
Curves - which is
you? 218
211
204
197
190
183
176
169
162
155
Cash Flow Codes
148
141
134
127
120
113
106
99
92
85
78
71
64
57
50
43
Ranked Average 30 yrs NPV Per Unit
36
29
22
15
8
1
-£50,000 -£40,000 -£30,000 -£20,000 -£10,000 £0 £10,000 £20,000
-£50,000 £0 £50,000 £100,000 £150,000 £200,000

24. Cash flow per unit
- how different
units performs £1,500
£1,000
£500
£0
• Three tower blocks 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
-£500
• Surplus/deficits
-£1,000
• Different outcomes -£1,500
-£2,000
-£2,500
-£3,000

25. Output
Area Profiles: 40000
Future Values KingsHay Bedsit Trad Gen
ExNT (13)
30000
KingsHay Flat Trad Gen ExNT
(49)
20000
HighSt Flat (+1xBung) Trad
Gen ExNT (176)
10000
Woollam House Trad Gen
ExNT (25)
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Arleston House Trad Gen
ExNT (130)
-10000
BarnFarm House (+4xBung)
Trad Gen ExNT (131)
-20000
Arleston House NTrad Gen
ExNT (36)
-30000
Arleston Flat NTrad Gen ExNT
(27)
-40000
Arleston Flat Trad Gen ExNT
(27)
-50000

26. All Stock NPVs
and Market
Values
£250,000 £60,000
£40,000
£200,000
£20,000
£150,000
MV VP
£0
NPV
-£20,000
£100,000
-£40,000
£50,000
-£60,000
£0 -£80,000

27. Geographical
Strategy

28. Price by Total Bids; Price p u
Type of Type Total Bids £m Price p u Units
Portfolio: General Needs £143.1 £64,827 2207
General Needs/SO £73.6 £49,234 1494
Totals & 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 by
Type of Total Bids; Price p u
By Region Total Bids £m Price p u Units
Portfolio: East England £17.7 £49,385 358
Totals & 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 EUVSH
Uplift Type % Uplift
above 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 EUVSH
above 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 hammer
market? • Market still strong

33. Part four:
Restructuring an
Association
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 obstacles
Groups • 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 a
Restructuring 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 projects
Association • 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 Industries
Argent Plc Lovell Partnerships Akzo Nobel/ICI Paints
Breyer Group Mansell British Precast / Modern
Galliford Try Mulalley and Co Masonry Alliance
Higgins Construction Plc Osborne Excel Industries
Hill Partnerships Robert Woodhead Ltd Forticrete
Ian Williams Rydon Construction IG Doors
Igloo Regeneration Seddon Group K Panels Ltd
Jones Homes Southdale Homes Kingspan Potton
Keepmoat Thomas Vale Construction Marley Plumbing & Drainage
Kier United House Polypipe Group
Lakehouse Wates Living Space Swish Building Products
Land Securities Willmott Dixon Housing UK Timber Frame Association
Leadbitter 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 Group
chaired by board member John Cross, bpha
Conclusions:-

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

55. www.housingforum.org.uk

56. NO FACTS, FIGURES, GRAPHS AND
TABLES
RATHER
STATEMENTS HOPEFULLY TO PROMOTE
DISCUSSION
Brian Everett, Operations Director
Bellway 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 Executive
I will cover:
Brief background of Orbit
Context for our Future
Future of our Organisations
Transforming into our Future

65. Orbit Group
A Federal Partnership
37,000 homes
£165m turnover
1100 staff
Assets of £1.5bn

66. Context: 3 Factors
Global
• Economy & Austerity
• Unemployment & Society
• Politics & Power
National
• Austerity
• Redefining Relationships
• Policy Reform
Social Policy
• Recognition of Issues
• Vigorous Reform
• Changing Roles

67. Direction in the New World
Direction
Tradition
al
Progressi
ve
Return Risk
Radical
The 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 Change
Current & future customers
Affordable rents/capital reduction
Welfare reform
Austerity & value for money
Regulation/self-determination
Evolving role of LA’s/communities
Sustainability/green economy

70. Change Agents
Customer: services & standards
Communities: role & investment
Homes: range & funding model
Structures: partnership & innovate
Finance: income, funding, VFM
Organisation: culture, technology
Each organisation must assess what to
transform to be successful

71. Strategies
Improve what we have/do now
Exit or expand services/geography
Increase income – revenue/capital
New partnerships & ventures
Influence, promote our role
Culture 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
transformation
Progress since 2003
Plans to 2013
Orbit 2020 Project
• Environment & Vision
• Drivers & Change Agents
• Strategies & Outcomes
Leadership!

74. Transformation Process
Environment
Business Drivers
Direction
Change Agents
Outcomes
Developed among organisations
across four counties

75. In Summary
The world is radically changing
Organisations must transform
Require a different approach & role
Align outcomes, operations & culture
Leadership is critical