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