1. NHF TREASURY CONFERENCE 8 th October 2014 DIVERSIFICATION Commercial Residential Markets How do we use to help Fund Social Housing?

2. DIVERSIFICATION Commercial Residential Markets How do we use to help Fund Social Housing? 1.Derwent's Strategy 2.What is our commercial activity? 3.How do we Fund? 4.Conclusions

3. A private Independent Housing Association working substantially without public funding We have never taken much grant. £137m – 29% of the total cost of our social assets Our current 3 year development programme is 250 per year. 1,000 over 4 years We have grant for just 126 (to keep our hand in!) We don’t have any supported housing any more 1. Derwent’s Strategy

4. We use profits to subsidise the production of new homes – a social purpose Our current performance is that around £3/4m profit is available per year to meet our objective. We’ll explain later how we produce this We are expanding our commercial activities and continue to raise profits by downward pressure on our core business costs. 245 to 130 FTE in 5 years plus repairs costs reduced

5. 1. Derwent’s Strategy We manage/maintain good quality services and homes We do not neglect our core business and service. We do all the things HA’s do but because we are not community based, new housing is the most efficient way that we can invest in communities

6. 1. Derwent’s Strategy We want to protect the business from cuts to housing benefit Whichever Government is in power after May 2015 will continue to try and reduce the housing benefit bill We cannot afford to continue to house people who are reliant on Housing benefit We will meet our existing obligations

7. 2. What is our commercial activity? Derwent is a regional HA based in Derby which manages/maintains 25,000 properties We own 10,000 and manage the rest We have 8,000 core business social and affordable rent and shared ownership 2013 2014 Turnover £58mTurnover £60m Profit £3mProfit circa £4m

8. 2. What is our commercial activity? Part of the profit line is against the core business….. £1.3m p.a. The rest is from commercial activity This takes up 40% of total turnover. This will rise to 49% in 2014 This is: Student accommodation Market rent/key worker housing Facilities management

9. 2. What is our commercial activity? We do not use market sales as part of our approach. It is too risky! We have some property disposals but these are not in our financial plans. They are a bonus We have taken this market risk out of our financial plan

10. 2. What is our commercial activity? Student Market 1,000 owned bedspaces and 15,000 managed. The bulk of our commercial profit is from this

11. 2. What is our commercial activity? Student Market Uliving Equity investments. A consortium involving Bouygues, Universities and investors. Essex, Herts and Gloucester Own stock profitable but rationalising

12. 2. What is our commercial activity? Facilities Management DFM based in Harrogate. £20m turnover and £1.8m profit. 600 staff. Mostly student management with portfolios for ULIVING, Avenue capital, Apache and Alumno Also HMRC, Tesco bank, Bristol CC etc Steady income stream and minimum risk

13. 2. What is our commercial activity? Market Rent/Keyworker 1036 homes £5.3m rental income annually Its an old portfolio with low rents But we see this as the future. A product aimed at low income households not on benefit. Increasingly want to build this kind of home

14. 3. How do we fund? Our loan portfolio. How we funded student accommodation and market rent ‘Normal’ bank funding arrangements Use of sale and leaseback arrangements where appropriate Use of SPV and project funding including Beach Student Fund

15. 3. How do we fund? Why the variety? Reduce risks (inflation, matching asset duration, providing comfort/flexibility) Aim to match funding types to underlying assets Flexibility…..not all eggs in one basket

16. 3. How do we fund? What we are looking at now? Long-term investment in new student schemes tied into Universities with long-term management income De-risking existing assets – moving into arrangements with less equity exposure Ensuring pot for reinvestment or allowing disposal

17. 3. How do we fund? What we are looking at now? Use of existing assets – release assets to provide future funding Link to Hot House / NHF 2033 project to supply more homes Use of SO as a test case

18. 3. How do we fund? Issues and Regulation Existing rules and regulation need to catch up with the new environment Taxation system not helpful to provide maximum output Despite barriers we continue to push solutions

19. 4. Conclusions Stand on our own 2 feet If grant ever returned on decent terms we would be back in But how likely is that given the ‘austerity’ consensus? The State is being rolled back Prudent strategy based on ‘immunity’ from residential markets. Ownership versus management Profitable investments and steady annual returns

20. 4. Conclusions Making money works for us as an investor – Uliving example Using management contracts – lower margins but less risky - to also give us steady income – this buys us into the investment opportunities 50% plus in future but we are fixed on our mission – to build new homes but with a sustainable business protecting what we and our existing tenants already have

21. 4. Conclusions Proud to be top of the diversification league on the basis of a prudent strategy…..worried if we relied on market sales and housing benefit Our only problem is scale. We are limited in how far we can grow this