Presentation to Investors on the Amalgamation of Notting Hill Housing and Genesis Housing - Notting Hill Genesis
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Presentation to Investors on the Amalgamation of Notting Hill Housing and Genesis Housing
Index 1. Introduction 2. Reasons for the merger 3. Governance and timetable 4. Development programme and enterprise profile 5. Asset quality and performance 6. Financial profile 7. Treasury policies 8. Other matters 2
Introduction (Conrad Court, Lewisham)
Introduction
• Notting Hill Genesis has been formed by the amalgamation of Notting Hill
Housing Trust and Genesis Housing Association, organisations that can trace
their roots back to the mid-1960s.
• The new merged organisation came into being on 3 April 2018.
• We estimate that Notting Hill Genesis is the third largest Registered Provider
in London and the fifth largest in England.
• Most of our operations are in London, but a small proportion is in the wider
South East.
• This presentation to investors sets out the reasons for the merger and gives
some key information in relation to the new, combined, organisation.
4
Reasons for this merger
Reasons for the Merger
• Both organisations had separately concluded that to make a difference in the
new world, it is necessary to be of significant size – as mentioned earlier the
new organisation is the third largest in London and the fifth largest in England.
• This will enable us to have influence at the centre of Government, both locally
and nationally.
• This will improve the financial strength of the new organisation of the
organisation over the early years of its operation. We intend to use that
strength to increase the number of homes that we build and improve the
services we provide to our residents.
6
Reasons for this merger
• Notting Hill Housing and Genesis were founded by people who understood
the London housing crisis of their time.
• Both organisations started in West London in the 1960s, either side of the
Harrow Road, but have developed into truly pan-London housing
associations, owning or managing more than 64,000 homes between them.
• The geography - creating a major housing organisation for London - is
compelling.
• Joining together increases our financial resilience and the first task will be to
review the position carefully and stabilise the finances of the combined
organisation.
7
Reasons for this merger - Geography
Both organisations have a strong focus on London. 87% of our stock is in
London.
Looking at specific London Boroughs:
• Largest by social housing stock owned: Barnet, Hammersmith & Fulham,
Hounslow, Kensington & Chelsea and Westminster.
• Second largest by social housing stock owned: Brent (Network is larger)
and Camden (One is larger).
• Third largest by social housing stock owned: Ealing (Catalyst and A2
Dominion are larger) and Harrow (A2 Dominion and Home are larger).
We expect to exit areas outside London where we have low levels of investment.
The following maps explain the 31 March 2018 position.
8
Combined Stock – Centred on London
Number of homes
owned and managed
in London as at 31
March 2018 – 55,596
87% of total stock
9
Combined Stock – Southern England
Total owned and
managed overall
as at 31 March
2018 - 64,006
10Enterprise Profile of new organisation
We will have over 64,000 homes under ownership or management.
• 87% of our stock is in London, where the average population growth was
1.29% pa for the 10 years to 2016 and house prices average £484,500 against
the UK average of £226,756 (214% of the average).
• In London, the average RP rent is less than half the average market rent
(£124.07pw vs. £388.85pw).
• We have Board members and executives from each organisation, so that we
understand the characteristics of each, and have the capability to deliver
strategic aims - see governance slides.
• The average age of our housing is about 35 years, with void losses of less
than 2% across our social housing stock.
11
• Our social housing has arrears of under 5%.Governance and Timetable
Governance arrangements - Board
This is a merger of equals and the governance arrangements reflect that.
The new group was created by amalgamating Notting Hill Housing Trust
and Genesis Housing Association and is called Notting Hill Genesis.
This required two special general meetings of each Registered Provider
which have been held and passed the required resolutions.
The 12 member Group Board consists of four non executives from each
of Notting Hill & Genesis, a resident from each, the Chief Executive and
the Deputy Chief Executive. The names are on the following slide.
The Group Board will be the Board of all the RPs in the Group.
13Governance arrangements - Board
The Board members are as follows.
Non Executive Members Resident Members
Dipesh Shah (Chair ex-GHA) Stephen Bitti (ex GHA)
Jenny Buck (ex GHA) Linde Carr (ex NHH)
Jane Hollinshead (ex NHH)
Bruce Mew (ex GHA) Executive Members
Alex Phillips (ex NHH) Kate Davies (Chief Executive - ex NHH)
Richard Powell (ex NHH) Elizabeth Froude (Deputy Chief Executive - ex GHA)
Eugenie Turton (ex GHA)
James Wardlaw (ex NHH)
14Governance – Sub Committees
The sub committees are as follows:
Treasury - chaired by Alex Phillips
Audit and Risk - chaired by Bruce Mew
Development and Assets - chaired by Richard Powell
Resident Services - chaired by Eugenie Turton
Remuneration - chaired by James Wardlaw
Nominations - chaired by Dipesh Shah
15Governance arrangements - Executive
• The executive team consists of the Chief Executive plus eight individuals.
• The executive team is drawn from former Notting Hill and Genesis staff in
broadly equal proportions
16Executive
The executive team (with former organisations) is as follows:
Chief Executive Kate Davies (NHH)
Deputy Chief Executive Elizabeth Froude (Genesis)
Group Director of Finance Paul Phillips (NHH)
Group Director of Development John Hughes (NHH)
Chief Operating Officer Andy Belton (NHH)
Group Director of Housing Carl Byrne (Genesis)
Group Director of Central Services Vipul Thacker (Genesis)
Group Director of Commercial Services Mark Vaughan (NHH)
Group Director of Regeneration and Jeremy Stibbe (Genesis)
Strategic Asset Management
17Key Events
We have put in place some key plans and policies:
• The shadow Board approved a 30 year plan on 30 January 2018
(the “Foundation Plan”).
• This has been submitted to the Regulator and Standard and
Poor’s.
• S&P have assigned an A+ (negative outlook) rating on the Group.
• The Regulator has issued a G1/V2 (compliant) rating on the
Group.
• The Board approved a Treasury Management Policy on inception.
18Development Programme & Enterprise Profile
Development Programme
NHG will use the additional financial resilience created by the merger to support
it’s development programme.
• We will target completions of 2,700 homes per year.
Type Homes
Low cost rental 690
Shared ownership 970
Private sale 520
Market rent 520
Total 2,700
• It will take some years to reach a steady state, but we expect to complete
about 12,000 homes over the five years to 2023.
• We intend to keep most of our programme as social tenures (low cost rental &
shared ownership), with a balance of about 60%/40% in favour of them. 20Pipeline – five years to March 2023
Completions
Total of 12,779 homes
in the pipeline of
2,421 which 12,013 are
Low cost rental identified and the
3,474
remaining 766 have
Shared ownership yet to be identified.
2,335
Market rent Expect to increase
gradually to about
Private sale 2,700 pa from 2024
4,549
onwards.
21Risk Management
We have put in place mechanisms, based on those in the antecedent organisations
to ensure that the risk of development is well managed. These include:
• Limitations on new capital commitments in each year.
• Limitations on the amount of capital we will to put at risk, by reference to housing
price reductions and reserves.
• Limitations on land bank (£350m of which £134m was spent as at 31 March
2018) and work in progress.
• All schemes approved by the Executive, with larger ones referred to a specialised
sub committee and very large ones to full Board too.
• Treasury policies to ensure that we have sufficient liquidity in adverse scenarios.
• Large commitments phased to reduce exposure over time.
• Sales programmes phased over time with the ability to finance and manage as
market rent if needed. 22Market sales risk – peak years
2019/20 Total 436 2020/21 Total 562
6 11
< £400k
99 111 132 155
£400k - £600k
£600k - £800k
> £800k
264
220
UnitsLargest schemes
The three largest schemes are at:
• Grahame Park
• Aylesbury Estate
• Canada Water
The following three slides summarise each.
Note that each scheme has a number of phases, meaning that we
are not committed to the entire expenditure now.
25Grahame Park
• Masterplan c. 3,000 homes
• Stage A - 685 homes
• Stage B - 1,083 homes - delayed
by Mayor calling in planning
• Stage B+ - 1,231 homes 26Aylesbury Estate •Signed up with LB Southwark April 2014 •3,538 homes, 820 in Phase 1 •Demolition in progress for Phase 1 •Capital investment (Phase 1) £352m •Review for CPO decision •Capital investment (total) £1,316m •Construction expected to start 2018 •Expected completion: 2034
Canada Water •Construction started April 2016 •Completed in phases from 2018. •Capital investment: £589m •Mix of 1,030 homes: •Includes 42 storey tower •162 Affordable Rent •In partnership with Sellar Group •69 Shared Ownership •Designed by Macreanor Lavington and •453 Private Sale David Chipperfield •346 Market Rent
Asset quality and performance
Welfare Reform – Key Statistics
20% of turnover impacted by Universal Credit
20%
Social housing rent via Housing Benefit
from tenants of working age
Social housing rent via Housing Benefit
44%
6% from tenants not of working age
Social housing rent not from Housing
Benefit
Other turnover
30%
30Grenfell Tower Notting Hill Genesis has reviewed its entire stock and established that seven sites of over 18 meters in height have Aluminium Composite Materials (ACM) cladding. All sites have had interim measures put in place as recommended by the Fire Service and Ministry of Housing, Communities & Local Government. Remedial works have commenced on four sites and are in the final stages of assessment for the other three. The combined cost to NHG of the remedial works is currently estimated at about £4m. One of these schemes is in charge to one of our public bonds but is being withdrawn now. We have reviewed our design standards and new homes will not have ACM cladding. In addition, we are fitting sprinkler systems to all new homes of five storeys and over that are being developed now. 31
Financial profile
Financial Highlights - pro forma basis
Year ending 31 March 2017
• Operating surplus of £211.7m • Total assets of £7.6bn
• Group surplus of £178.7m • Reserves of £3.06bn
• Gearing (Loans/Housing at cost) • 64,000 homes owned and
remains low at 42% managed
• Successful sales programme • VP value of housing
• Committed, undrawn funding properties of £17.7bn
lines available of £596m (at 31
March 2017)
33Property Valuations As at 31 March 2017 Genesis Notting Hill Total Category £bn £bn £bn Completed housing - cost (A) 2.9 2.9 5.8 Housing under construction - cost 0.1 0.2 0.3 Unsold housing for sale 0.1 - 0.1 Housing for sale - land bank and under construction 0.1 0.3 0.4 Investment properties at valuation 0.1 0.3 0.4 Investment properties under construcion 0.1 0.1 0.2 Total property - book value 3.4 3.8 7.2 Estimated valuations Completed property (A) at VP value 7.4 10.3 17.7 Completed property (A) at MV-T 4.1 5.3 9.4 Completed property (A) at EUV-SH 1.9 2.7 4.6 34
Pensions – 31 March 2017 Position Both organisations have defined benefit (DB) schemes that are closed to new members. Genesis has transferred its former participation in the Social Housing Pension Scheme to a new scheme (Genesis 2016 scheme). It also continues to operate the PCHA 2001 scheme. Genesis also has membership of the LPFA scheme. Notting Hill Housing continues to be a member of the SHPS DB scheme and has a liability to a LGPS scheme (LB Richmond). Registered Provider Scheme Net Liability per accounts (£m) Genesis Genesis 2016 11.8 Genesis PCHA 2001 18.2 Genesis LPFA 2.9 Notting Hill SHPS 23.7 Notting Hill LGPS 0.9 Total 57.5 35
Treasury Policies
Summary of Debt and Liquidity Position
Group Debt Position (as at 30 April 2018)
Facilities Drawn Undrawn
£'m £'m £'m
Notting Hill Genesis 4,004 3,247 757
Debt Maturity Profile
Summary of Group Debt Position 1,400
1,300
1,200
• Average life of drawn debt: 16.2 years 1,100
1,000
900
• Average cost of drawn debt: 4.06% 800
700
£'m
• Total Borrowings: £4.0bn 600
500
400
• Undrawn facilities: £757m 300
200
• Cash Balance: circa £62m 100
-
0-1 years 1-2 years 2-5 years 5-10 years 10-20 years > 20 years
37Summary of Loan Covenants
New Loan Covenants (effective from merger date)
• Interest Cover 1 Year (EBITDA Sales to Net Interest ) – 105%.
• Interest Cover 3 Years (EBITDA MRI Sales to Net Interest) – 110%.
• Gearing (Net Debt to GBV Total Assets (incl. Housing Properties, investments
properties and stock) - 75%.
• Prudent interest rate management is optimised with the use of derivatives, but
only to hedge existing exposures.
• Maintain prudent level of variable rate debt (greater flexibility for sales receipts).
• c11,869 unencumbered properties with security value of £2.2bn based on a
mixture of EUV-SH and MV-T.
38Other treasury matters
Group Debt Mix Position (as at 30 April 2018)
Actual Target liquidity:
Highest of sufficient to meet:
Fixed 73% • all contractual commitments.
Floating 24% • A minimum cover of 125% of 12 months’ net
cash requirements.
Indexed linked 3%
• 12 months’ net cash requirements after reducing all
property sales income by 50% plus any collateral
shortfalls on derivatives resulting from a 50 basis
Group Duration:
point parallel adverse (typically, downward) shift in
Actual (current): 15.5 years the relevant yield curve.
39Business Planning Policies
Our base plan has:
• All loan covenants met with at least 10% margin.
• Operating margin at least 27%.
• Adjusted EBITDA at least 30% of turnover - five year average.
• Debt/Adjusted EBITDA below 20 times - five year average.
• Adjusted EBITDA over interest payable to be maintained above 1.5 times -
five year average.
• Social housing rental operating surplus to cover net interest paid 100% each
year.
• All rental operating surplus to cover net interest paid 120% each year. 40Treasury Policies Other Matters
Listed Bonds
The two antecedent organisations had a different approach to Bond issues.
• Notting Hill issued bonds directly from its parent, Notting Hill Housing Trust. These
bonds are, therefore, now direct obligations of the new parent, Notting Hill Genesis.
Notting Hill had four bonds in issue maturing in 2032 (£250m), 2042 (£300m),
2049 (£400m) and 2054 (£250m).
• Genesis issued bonds through its treasury vehicle, Genfinance II plc. Genfinance
II remains in existence with the security package for investors in place.
Genfinance II had one bond in issue, maturing in 2039 (£250m).
All required documentation in relation to the amalgamation has been submitted to
the Trustees for these bond issues.
42Ratings
At its meeting on 31 January, the shadow Board of Notting Hill Genesis took the
following decisions.
• They decided to seek a rating for the new organisation from Standard and Poor’s.
• They decided not to seek a rating from Moody’s and Moody’s were asked to
withdraw their rating on the Bonds.
• They decided not to seek a rating from Fitch for the time being.
Standard and Poor’s have now issued a rating on the new organisation and all
underlying bond issues. A copy is on the Notting Hill Genesis website and this will be
kept up to date. The rating is A+ (negative outlook).
Moody’s will not rate Noting Hill Genesis, but they have decided to continue to rate all
existing bond issues on an unsolicited basis. The rating is Baa1 (stable).
43Communications We intend to publish the following. • audited financial statements for the year to 31 March 2018 for Notting Hill Housing and Genesis Housing Association by 31 July 2018. • unaudited abbreviated pro-forma financial statements for Notting Hill Genesis, using the accounting policies of the new organisation, in September 2018. • summarised unaudited half year results for Notting Hill Genesis by Christmas 2018. • audited financial statements for the year to 31 March 2019 for Notting Hill Genesis by 31 July 2019. Note that the Notting Hill accounts will be audited by PwC and the Genesis accounts will be audited by BDO. A firm will be appointed to audit the NHG accounts later in 2018. 44
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