Developing the commercial skills

to transform your organisation

Neil Hadden

Chief Executive, Genesis

Contents

• Introduction – my proposition

• Background information on Genesis

• Our approach to asset management

• Looking forward

• English Social Housing Property Index

• Some concluding thoughts

My proposition

• Housing associations need to take a commercial approach in

order to continue to fulfil their social purpose and survive

• The VfM standard will be an increasingly important lever in the

Regulator’s armour

• Housing associations need to be more strategic in their

approach to asset management

Genesis’ property portfolio

Portfolio comprises 33,000 properties. 27,000 are owned and the remainder managed on behalf of other landlords

– work in 88 local authorities

– 50 per cent of Genesis activity is located within five local authorities

– 14 additional local authorities cover 30% of portfolio

Tenure split

– 3 in 5 homes are social and affordable rent

– 1 in 5 are leasehold and shared ownership

– supported housing (1 in 6) and intermediate/market rent (1 in 12)

Genesis stock

Our approach

• Portfolio fit for purpose – now and in the future

• Commercial perspective – optimising value

• Replacing public subsidy – to fund new development

Leveraging our assets

• Asset optimisation

- selective disposal of poorly performing or marginal properties in the

portfolio

• Asset rationalisation

- to improve management or operational efficiency

- LIFE model and exit areas

• Asset leverage

- recycling value from high value areas to invest in regeneration,

development and place creation

£250,000

£0

-£250,000

NPV per unit

Retain and invest, regenerate or redevelop to add value Properties identified for churn

Asset leverage

A traditional approach

Asset leverage

Potential approach

Tomorrow’s housing association

The sector as a whole will need to:

• Be astute in managing their assets

• Be able to develop without grant funding

• Offer a range of products and services to a diverse customer base

• Come up with ideas rather than wait for the regulator

• Demonstrate clear ROI to investors and other stakeholders

• In short, act as commercial businesses.

An innovative example

The English Social Housing Property Index • Developed by IPD* in conjunction with Genesis, Helena Partnerships, LMH,

Spectrum, Gallions, Circle and Orbit

Aims • Demonstrate the economic performance of housing association property assets

through the creation of a return-based performance benchmark/ index

• Demonstrate the economic sacrifice or social dividend or policy impact of

accepting below-market level returns

Benefits for participants • Detailed portfolio analysis

• Input to risk analysis/ management

• Aids selection of properties for investment/ disposal

*IPD = Investment Property Databook

Key elements of IPD performance

measurement standard

• Benchmarking social housing portfolios

• Looks at value and allows prospective investors and housing associations to make informed investment decisions

• Performance measurement and reporting on a continuous and regular basis

• Primary focus on activities related to investing in developing and managing property

• Adoption of generally accepted definitions underlying these activities

• Measurement on activity based costing basis

• Measurement of cash flows on accrual basis

• Comprehensive measurement – all property related activities

• Measurement on basis of external value – gross OMV

• External valuation of cash flows and values

€ 0

0%

STRATEGIC:

Overhead as % of capital value

Policy impact:

TACTICAL: Total return

Capital growth

Income return

Activity

OPERATIONAL: Operating cost as % of g.i.**

Operating costs per property

Voids as % of OMV*

Gross income growth %

Capital supply

Investment

management Transformation

function

Letting Facility

management

Property

management

Consumers/ households/ end users

Benchmark – headline figures

Measure Totals Per property

Number of participants 5

Number of schemes (year end) 1821

Number of units (year end)* 67,311

Total sqm *year end) 4,357,122

Gross income £347.3m £4,668**

Rent passing (year end)* £287.8m £4,276*

Market rent (year end)* £527.4m £7,835*

Operating costs £230.9M £3,241**

Market value (year end) £5.7bn £74,196*

Vacant possession value*** £9.6bn £118,613*

*standing investment and part transaction schemes

** standing investments

*** where vacant value is known

Headline figures

Structure as % of total capital value by tenure – all property

Direct property performance

Total return– standing investments

Switzerland

English Social Housing Property Benchmark

Total return (March 2012) 14.9

Residential total return across Europe (December 2011)

Direct property performance

Total return per sector/ segment – standing investments

14.6 14.9

12.9

14.6

11.2

14.6 14.3

18.0 14.9

0.02.04.06.08.0

10.012.014.016.018.020.0

Pe

rce

nta

ge

*’Other housing with shared facilities’ is left out of the analysis due to compliance with IPD’s confidentiality rules

Direct property performance

Income return – standing investments

English Social Housing Property Benchmark

Income return (March 2012) 2.1

Residential; income return across Europe (December 2011)

Switzerland

Pe

rce

nta

ge

Direct property performance

Income return per sector/ segment – standing investments

2.6 2.8

2.0

1.2 0.8

2.7

1.4

2.0 2.1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Pe

rce

nta

ge

*’Other housing with shared facilities’ is left out of the analysis due to compliance with IPD’s confidentiality rules.

Direct property performance

Income return per tenure – standing investments

4.3

1.7

3.8

2.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Pe

rce

nta

ge

*’Regulated, affordable and market rent’ is left out of the analysis due to compliance with IPD’s confidentiality rules

Direct property performance

Total operating costs per sector – held properties

*For some markets certain measures are available but not included in Market Data publications and therefore not shown in

this analysis

Houses Flats Other

housing Total

As % of gross

income

61.2 80.0 76.7 70.1

£ per m2

36.96 63.30 103.59 51.65

£ per property

3,959 3,614 3,086 3,241

Direct property performance

Breakdown of operating costs – held properties

Maintenance costs

(responsive and

planned)

Letting

costs

Property

management

Fixed

costs

Other

costs

Total

As % of

gross

income

44.5 0.1 23.4 0.9 1.9 70.8

£ per m2

2.43

0.04 17.10 0.68 1.40 51.65

£ per

property

2035

2 1073 43 88 3,241

Direct property performance

Operating costs as % of gross income by tenure – held

properties

*’Regulated, affordable and market rent’ is left out of the analysis due to compliance with IPD’s confidentiality rules.

Pe

rce

nta

ge

Direct property performance

Ranking: operating costs as % of gross income – held

properties

*December 2011

Pe

rce

nta

ge

Direct property performance

Rent passing/ Market rent £ per m2 - standing investments

54 67 65

73 79 67

99 111

123 127 110 115

0

20

40

60

80

100

120

140

Rent passing per sqm market rent per sqm

*’Other housing with shared facilities’ is left out of the analysis due to compliance with IPD’s confidentiality rules.

Direct property performance

Income potential: rent passing as % of market rent by

tenure – standing investments

58.48 57.68

92.73

51.23

0

10

20

30

40

50

60

70

80

90

100

Rent passing as % market rent - benchmark Rent potential - benchmark

*Regulated, affordable and market rent is left out of the analysis due to compliance with IPD’s confidentiality issues

Policy impact in 2012

Policy impact – only residential – standing investments

English Social Housing Property Benchmark

Capital growth (March 2012) 12.6

Residential: capital growth across Europe (December 2011)

Direct property performance

Capital growth – standing investments

Switzerland

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Direct property performance

Capital growth – standing investments

*’Other housing with shared facilities’ is left out of the analysis due to compliance with IPD’s confidentiality rules.

Some concluding thoughts…

• A powerful tool with rich material

• Increases professionalism/ commercialisation of sector

• Chimes with HCA

• Support from NHF and Housemark

• Will be even better with more housing associations

– If you want to join, see me later