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Equity-linked association that nearly went insolvent bounces back into the black after creditors deal
A troubled supported housing provider that nearly went insolvent last year has reported a return to profit following the completion of a company voluntary arrangement (CVA) deal with creditors.
First Priority, which provides housing to adults with learning disabilities and mental health issues using an equity-linked business model, recorded a profit of £4.5m in the year to February 2019. This compared with a loss of £5.8m the previous year.
The profit includes a gain of £7.6m from a CVA agreement with creditors, completed in April this year.
The profit came despite the group’s turnover from rent falling 51% to £6.5m, accounts filed at Companies House revealed.
This fall in turnover was driven by First Priority relinquishing a number of the properties it was leasing from funders and landlords. The number of units it managed has been cut to 438, down from 1,018 in the previous financial year.
The Harrogate-based association is among a number of small landlords offering housing to vulnerable adults using a controversial lease-based model, in which the homes the organisations operate are predominantly leased from city investors.
First Priority, which was censured by the regulator last year over its governance, said that the CVA meant the company renegotiated lease terms with its landlords on a number of properties, and this had put it on a “more secure financial footing”.
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John Higgins, chief executive of First Priority, told Inside Housing: “We want to make sure we have learnt lessons. We have moved on to a more sustainable footing, the leases are now varied and this means we do not face the same risks on leases that other [registered providers] are facing.
“As part of the CVA we agreed a variation of leases. That gives us the headroom to be confident that we can deliver the services we need to and not taking undue risks on properties.
“In looking at new business we are very clear about risks we are willing to take on. Like others, our prime concern is to make sure properties remain compliant and are safe for our tenants.”
In a judgement last year, the Regulator of Social Housing (RSH) said the fact that First Priority was dependent on the goodwill of its lease counterparties in relation to rent payments indicates a “fundamental failure of governance”.
In its accounts, signed off in August this year, First Priority said it had made “considerable progress in completing many of the actions identified” but there was still “considerable work to be done”.
It said it will aim to “drive improvements” in the performance of its existing stock as well as “delivering on the plan to achieve regulatory compliance”.
The company said that it had so far completed 39 of the 45 action points it had set out in its governance review after the regulator’s judgement, and that the remaining six would be completed next month.
At the start of this year, First Priority had a major boardroom shake-up as three permanent directors, including chair Steven Coleman, exited. And three directors appointed on a statutory basis by the regulator, including former Sovereign chair John Simpson, also stepped down.
Five new appointments were made, including Iain Sim as chair, who is a former chief executive of Coast & Country Housing, now known as Beyond Housing.
According to the filing, First Priority has one employee, classified as “administration and support”. Directors’ pay jumped from £67,685 to £110,883.
The accounts also revealed that First Priority paid £550,000 in professional fees related to the CVA.
A report from the RSH in April said it was “hard to see” how housing associations that operate equity-linked business models can comply with its standards.
