Market rent…

James Gibson Regional Development Director

A key part of your strategy?

Growth in market rent

Creating homes, shaping communities, changing lives

• Post ‘credit crunch’ PRS thriving

• 2006-2011 PRS households rose from 3.4 to 4.8 million

• Projected growth of 2.6 million PRS households by 2020

• Estimated £48 billion paid in rent in 2011

• Expected to rise to £70 billion in 5 years

Supply challenge

Creating homes, shaping communities, changing lives

• Households rent for longer

• New home supply significantly below demand

• Increased supply critical to offering choice

• £200 billion investment to meet demand

• £50 billion expected to come from Buy to Let investment

• Private and institutional investment necessary

Business drivers

Creating homes, shaping communities, changing lives

• Funding for traditional affordable housing development declining

• Seeking other sources of funding to maximise affordable housing output

• Strong, sustainable demand for market rent

• An ethical corporate landlord

• A provider of choice

Business benefits

Creating homes, shaping communities, changing lives

• Utilise core expertise

• Access more development opportunities

• Reliable income streams and potential capital growth

• Meets a growing housing need

Business benefits

Creating homes, shaping communities, changing lives

• Government keen to support

• Institutional investment growing in the sector

• Market rent not constrained

Sovereign acquisitions

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• 276 developed organically

• 170 additional dwellings acquired in 2012 -13 financial year

• Further opportunities actively being progressed

Strategy to deliver 1,000 homes

The Robinsons building

Creating homes, shaping communities, changing lives

• 46 apartments in Bedminster, Bristol

• Very high quality development

• No affordable housing

• Acquired off inadvertent landlord

• All dwellings already tenanted

From bags to homes…

The Robinsons building

Creating homes, shaping communities, changing lives

• Distressed sale due to bank pressure

• Purchased at substantial discount to open market value

• Strong yield

• Existing potential for rent inflation

• Desirable area, with exceptional mature market rent market

Belmont & Stanshawe Court

Creating homes, shaping communities, changing lives

• 24 apartments in central Reading

• Receivership purchase – 20% plus discount from OMV

• Receiver acting as landlord

• Strong yield

• Very high potential of capital appreciation

The mainline to regeneration…

Market research and operational management

Tony Quigley Director of Home Ownership

Wider market context

Creating homes, shaping communities, changing lives

PRS is thriving!

• Increased by 1.5 million households in 10 years

• Looks set to house a fifth of all households by 2020

• Currently accounts for 16% of households:

o social housing accommodates 16%

o owner occupation down to 68%

• 13 million people live within South East/South West region

• Trend suggests market will grow by 2.6 million households by 2020

• Supply/demand mismatch

• Opportunity generally and specifically for HA sector

Local market factors

Creating homes, shaping communities, changing lives

• PRS Market differs from affordable

• Markets move

• Profile customer

• The 3 P’s:

o Place

o Product

o Price

• Competition

• Exit strategy

Local market understanding

Creating homes, shaping communities, changing lives

Consider…

• What are the pricing levels in the market?

• How have rents performed over time?

• What is the market type and rental activity?

• What are the yields in the area?

• How have house prices changed?

• How affordable is renting?

Commission bespoke research

Creating homes, shaping communities, changing lives

• Lettability of X market rent units in this location

• Achievable rental levels

• Rent sensitivity/competition price points, opinion of implications now and in future

• Perceived barriers to letting in this location

• Perceived demand now and in future

• Extent of any competition

• Impact of commercial units, views on appropriate uses that will not fetter value

• Impact of other portfolio schemes on demand

Example: analysis of the rental market

Creating homes, shaping communities, changing lives

Market classification:

• Classified as a mature rental market by Hometrack’s typology

• Ranked 262 out of 2,900 UK postal districts for rental market activity

Report provides in the BA1 postcode district

using Hometrack’s data on rental listings:

Example: analysis of the rental market

Creating homes, shaping communities, changing lives

Current rental values:

• The median rent across all property types in BA1 is £800 per calendar month (pcm)

• The median rent for 1, 2 & 3 bedrooms £675pcm, £895pcm and £1,095pcm

• Rents for the majority of 2 bedroom properties range from £795pcm to £895pcm

Market performance over time:

• Rents for all types of property have fallen by 3.8% over the last 3 months

• Over the past 12 months rents have risen by 3.8%

Example: analysis of the rental market

Creating homes, shaping communities, changing lives

Mix of property for rent:

• The majority of listings over the last 12 months were:

o 1 bedroom properties (39.4%) followed by

o 2 bedroom properties (34.6%)

• Flats account for 78% of listings and houses 22%

Capital values and yields:

• The average yield for a 2 bedroom property is 4.1%

• House price inflation during 2011 was 4%

• The total gross return in 2011 for a typical 2 bedroom rented property was 8.1%

Example: analysis of the rental market

Creating homes, shaping communities, changing lives

Affordability:

• Gross income required to buy a 2 bedroom property is £49,337

• Compared to £39,382 for renting a similar property

Renting is cheaper than buying, for all properties!

Positioning a commercial market rent offer

Creating homes, shaping communities, changing lives

We and our agents are knowledgeable, reliable, helpful and do what they say they’re going to do Find tenant

Void works

Let property

Tenancy management

General Management

Market rent management

lifecycle

We know our target market of offer them attractive properties in good locations

Portfolio management

Sell property

Buy property

We are customer-focused and build our processes around the customer perception of value

Response timescales appropriate to risk and expectations

We operate proactively to do things early, and right first time

We explore internal and external synergies

Operational requirements

Creating homes, shaping communities, changing lives

• Market analysis and customer profiling

• Service procurement and contracts

• Customer service

• Tenancy agreement

• Lean customer-focused systems and processes

• Marketing to customers:

o Branding

o Web

o Systems and processes

• Portfolio performance management

• Portfolio asset management

Performance management

Creating homes, shaping communities, changing lives

Asset management

Creating homes, shaping communities, changing lives

Actual Rents OMV

Unit Number

Total Rent Average

Rent Average

Monthly Rent Max Rent Min Rent Total OMV Average OMV

100 £1,000,000 £8,500 £650 £1,000 £550 £15,000,000 £150,000

Questions

Creating homes, shaping communities, changing lives

Any questions for:

Tony Quigley? James Gibson?