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Investment strategy

We focus on a long term social mission to create places where people want to live.

This means delivering homes that people can afford across a mix of tenures, including general needs rent, intermediate market rent, affordable home ownership, market rent and outright sale.

We have a planned works programme to ensure our residents live in homes that are safe, warm and environmentally friendly. In addition, we carry out reactive works to keep homes in good repair.

We also invest in people and communities. The L&Q Foundation's annual budget is being increased from £3 million to £7 million through an allocation of £100 million of L&Q's capacity, helping our residents to improve their lives.

Taking responsibility for our own future

The reduction in government grant levels means that we must seek funds from elsewhere if we are to continue providing new housing. L&Q is a social enterprise and our business model is based on taking measured commercial risk and driving efficiencies in the engine room to increase capacity and deliver our social mission.

In the year ended March 2014, our surplus of £174 million has allowed for further investment of £236 million on new affordable housing, £48 million on improving existing homes, £81 million on properties for sale, £23 million on market rented properties, and an additional £5 million on a Real Lettings property fund with the homelessness charity Broadway.

Over the next five years, we will spend some £4 billion developing over 13,000 new homes with at least a further 4,000 homes per annum thereafter.

2013/14 Highlights

  • We invested more than £300 million to build 1,000 new homes, bringing our total stock to 71,000, and will complete a further 2,000 in the year ahead;
  • Investment in existing properties increased to £48 million. Almost 2,000 residents are now enjoying a new kitchen and over 1,600 more a new bathroom following these planned works;
  • A further £100 million was spent on reactive works to keep homes in good repair throughout the year, especially during the worst winter since records began;
  • Thanks to the L&Q Foundation, around 900 L&Q residents have started work or training and, collectively, the most financially challenged are £2.3 million better off. The EnergySave programme, funded by the Foundation, has seen experts visit 20,000 homes and independent evaluation shows that residents who took part have saved more than £400 on average;
  • L&Q worked hard to prepare residents for welfare reform and rent arrears remain among the lowest in the sector at 3.9%. Financial inclusion and tenancy sustainment teams will continue to work with vulnerable residents, drawing on the support of specialist external partners where appropriate.

Our finances 2013/14

  • £84 million from driving procurement, treasury and operational efficiencies in the core business;
  • £58 million from commercial activities (open market sale, first tranche shared ownership sales; market rent) and;
  • £32 million from asset disposals.

Turnover increased from £457 million to £579 million, which includes the sale of 965 homes (292 for shared ownership and 673 for outright sale).

The 43% (2013: 46%) operating margin on social housing lettings remains amongst the best in the sector. The small decline from last year is due to unprecedented demand for responsive repairs after the winter storms, increased depreciation as stock condition surveys near completion and a small increase in bad debt provisions on arrears as a result of welfare reform.

Management cost per social housing unit of £496 continues to provide excellent value for money compared to our peers.

Net gearing is well within parameters at 52% (down from 56% due to current levels of cash receipts from sales) and interest cover including asset sales is up to 386% (248% excluding asset sales). Our loan facilities stand at £2.1 billion.

Revenue reserves increased from £667 million to £843 million.

The estimated open market value of assets increased by £1 billion to £13 billion, with a book value of £5 billion

For more information on key achievements and results, visit our 2013/14 Financial Statements.

Related Links

Credit ratings

L&Q is rated A1 with a stable outlook by Moody's Investors Service and AA with a negative outlook by Standard & Poors. Moody's most recent rating opinion was delivered in February 2014.

Moody's concluded that L&Q's credit strengths are:

  • Subsidies from the UK government support stability of cash flows;
  • Moderate debt levels, given strong cash holdings;
  • Strong balance sheet, with high levels of capital and reserves;
  • Experienced and capable management team, with deep knowledge of the market and a focus on positioning the organisation for strength in a changing operating environment;
  • One of the largest housing associations in the UK, with stock concentrated in London and;
  • Strong ongoing support from the UK government, including an effective regulatory framework and the receipt of a significant share of revenue (37% for L&Q Group from housing benefit), and Moody's assessment of a strong likelihood of extraordinary support from the UK government.

Credit challenges reflect:

Development programme increasingly relying on revenues from outright market sales and private sector rents to support growth in core social housing business, although debt levels remain prudent.

Declining social housing letting as a percentage of turnover as non-social housing commercial activities increase exposure to the implementation of welfare reform, which introduces uncertainty to revenues and cash flow, and Limited revenue flexibility, which is typical for the sector.

Standard & Poors most recent rating opinion was delivered in September 2013. S&P concluded that L&Q's credit strengths are:

  • Extremely strong business profile, supported by operations concentrated in the Greater London area;
  • Extremely strong management, with demonstrated ability to use flexibility inherent in the business model;
  • Strong financial profile, supported by a strong debt and liquidity profile
  • Strong ongoing central government support for the sector, coupled with a moderately high likelihood of extraordinary support.

S&P noted two potential challenges:

  • Growing exposure to market-based activity increases the risk of volatility in financial performance
  • Reduced levels of central government funding and welfare reform, which could potentially affect performance.

Corporate bond investors

We currently have three bonds.

In 1998, L&Q raised £130 million in bond finance through a dedicated financing vehicle and wholly-owned subsidiary called Quadrant Housing Finance.

The issue is a fixed rate bond paying a semi-annual coupon of 7.93% and was launched with BNP Paribas as the bookrunner. The debt is repayable in 2033.

In January 2010, L&Q raised £300 million through a debut bond issue priced at Gilts plus a spread of 1.15%. The Aa2/AA- rated 30-year bullet repayment deal was three and a half times over-subscribed within an hour of hitting the markets, attracting subscriptions worth £1 billion.

The issue is a fixed rate bond paying a semi-annual coupon of 5.5% and was launched in conjunction with Barclays Capital, Royal Bank of Scotland and Goldman Sachs as joint bookrunners. The debt is repayable in 2040.

In March 2012, L&Q raised £250 million via a bond issue priced at Gilts plus a spread of 1.57%. The Aa2/AA- rated 21.5-year secured bond was 2.4 times over-subscribed.

The issue is a fixed rate bond paying a semi-annual coupon of 4.625% and was launched with Barclays, Lloyds Banking Group and Royal Bank of Scotland Group as the lead managers of the sale, DTZ acting as valuer and Eversheds and Devonshires Solicitors acting as legal advisors. The debt is repayable in 2033.

Governance, regulation and risk

L&Q works to respond to local needs. Our board, executive team and staff are open about how we make decisions and how we oversee the process.

View our Board and Senior Structure

We are regulated by the Homes and Communities Agency. The regulator expects us to meet certain standards and it publishes its assessment of how well we comply. It has awarded us the highest ratings for governance and viability, find out more about its assessment on its website. We put residents at the heart of our decision making and reserve one place on our Group Board for a resident. We also have a Resident Board and seven Neighbourhood Committees for residents who would like to take on greater responsibility in shaping and improving our services.

See more information about our decision making and governance.

Risk

L&Q faces a number of risks in our operating environment which we regularly monitor. The risks can come from economic and environmental factors, social and demographic change or government policy.

Housing Market

Home ownership received a big boost last summer with Help to Buy, a new home ownership incentive. Although this is good for home ownership and house builders, it may prove bad for housing supply by creating a housing bubble.

Rising land costs in London could make it more difficult for us to secure affordable opportunities and maintain our development pipeline. However, the income from our outright sale and market rent homes reduce the impact of this. Where appropriate, we also share costs and risk through joint ventures.

Operating environment

With government funding for social housing no longer the norm, our approach of developing homes for outright sale and market rent has been attracting interest from politicians and civil servants.

Given the changes in funding for providers, our regulor, the Homes and Communities Agency, is looking at how best to protect social housing assets owned by charitable housing associations.

Welfare reform

Over 3,500 of our residents have been affected by what is commonly referred to as the bedroom tax. This has meant that their housing benefit no longer fully covers their rent. Three-quarters of affected residents have lost an average of £16 a week in benefit, while the rest have lost an average of £30 a week. This has had a knock-on effect on our levels of rent arrears.

The benefit cap was introduced later and has had an impact on fewer residents around 500 people to date. However, over time, as rents rise, the numbers will increase.

In addition to the work we do to support residents in financial difficulty, we have also increased funding for the L&Q Foundation so that we can help even more residents into training and employment.