1. Active Asset Management: Helping to Afford the Future Robert Grundy, Head of Housing Investment Consultancy, Savills CIH Harrogate – June 2011

2. Main messages Challenge the notion of unchanging asset ownership Encourage better use of capital invested in your assets Find ways to use that capital to achieve more and better housing

3. What challenges do we face? How are we going to afford it? Finite resources to pay for: Green agenda & Retro fit Lifetime homes Obsolescence: improvement & modernisation Maintenance and lifecycle costs Etc etc

4. 150,000 new homes by 2015 80,000 of these – HCA framework Funded by up to 80% market rents; or sales £24bn debt to fund 80,000! £45bn funds 2.5m homes What happens after 2015?? What challenges do we face? How are we going to afford it?

5. How will the sector respond? A new active approach to “asset management” Efficiencies and cost savings Simplify business/ Mergers etc Treasury management New investors – private? Affordable Rents & disposals Make best use of assets: –Better investment decisions –Active Asset Management –Better use of capital to achieve aims

6. You need the right tools: understand the strengths and weaknesses of your assets Do you know how individual assets perform? Multiple factors influence performance eg –Rents & voids –Stock Investment – highest cost = worst? –Response Repairs Savills Asset Management Modelling brings them all together Asset Groups Worth to the landlord = Net Present Value Reveals actual performance of assets Assesses tradeoffs & gives boards a decision making framework Options appraisals

7. Active Asset Management: Results from modelling. Worth £ per unit by Asset Group

8. Am I increasing or decreasing in worth over time?

9. Options appraisal Local initiative: management, services, community support Scope for Affordable Rents? Investment/ improvements? Switch tenure: SO or Market Rent? Decant & redevelop site? Trade to other RP? Market sell?

10. It’s not all about money though. What about balancing your objectives and residents needs?

11.  Key criteria selected and scored  Accessibility to employment  Crime domain  Health Deprivation and Disability  Accessibility to Key Services –Primary Schools –GPs –Hospitals –Foodstores  Quality of the Living Environment Neighbourhood Sustainability – how strong is the community? IndicatorWeightings Accessibility to Employment25% Crime25% Health Deprivation and Disability20% Accessibility to Key Services15% Quality of the Living Environment15%

12. Where and what do we invest in: Worth vs Neighbourhood Sustainability

13. Scope for Affordable Rents? Significant variation in rent potential Target Rent vs 80% Market Rent – North West National variation. Affordability?

14. Savills Partnership Portfolio market rents–individual market rents for whole portfolios Development rents – market rents for proposed schemes + sales valuations Web portal - Automated Valuation Model (AVM) - enter address & property attributes and AVM will give rent, confidence and comparables – interactive tool for actual rent setting Subject property details entered  Full address  Property type  Property style  Number of bedrooms (minimum information required) Rental AVM

15. Market Rents: Interactive web portal Comparables for review (and editing if required) Click and drill into details

16. Have you ever looked at a map of your holdings? How do you look strategically? Are you too thin on the ground in some places? Could someone else - Do a better job? - Operate more efficiently? Are we in the right places?

17. Price by Region: Totals & £ p.u. Stock Rationalisation

18. Uplift above EUVSH By Type Stock Rationalisation

19. Range of £ pu: General Needs Source: Savills Stock Rationalisation

20. Selecting a Transferee Summary of the process Expressions of Interest –Portal to identify interest –Need to avoid collusion Informal Tendering Quality and price: –Quality threshold or hurdle –Competition by price

21. Marketing Website

22. Marketing Website: Virtual Dataroom

23. Which to sell? Weed out poorest performers. Raise capital to re invest. Market Values left scale Net Present Values -right scale Having Analysed performance & risk could we use our capital better? Is it sometimes better to sell vacant properties to invest in the future?

24. Sale out of sector?

25. Sale out of sector on the open market Student Housing Sydney Webb House – on behalf of P4P 446 ensuite bed spaces LSE lease 30 years fixed rental uplifts of 3% pa £23m + achieved

26. Sale out of sector on the open market Shared Ownership – freeholds of portfolios Making this market The residents must be consulted to high standard The terms of the lease must be honoured. Management must be delivered by a Registered Provider. Price based on –certainty of rent (indexed) –Staircasing receipts – play on house prices 60 – 70% of vacant value of unsold share

27. Sale out of sector on the open market Care Homes The value reflects the whole business Requires a specialist operator Eg’s – mainly out of sector –5 homes for Anchor –2 homes for Stonham/Home Group –2 'special needs' homes for L&Q (former Ujima) –1 home for Hanover –1 closed LD home for Aldwyck Effect of Southern Cross????

28. Sale out of sector on the open market Sheltered Reality: Limited interest from RPs…. Obsolete/ obsolescent Decant Sell locally Building worth much more than site £1.5 - £2m typically