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Merger costs drive down Peabody’s surplus

Social landlord Peabody has seen its surplus fall by £5m to £175m in part because of costs arising from its merger with Family Mosaic last year.

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In its annual accounts for 2017/18, Peabody said the fall in the surplus – which is reinvested in housing development and existing stock – was in line with expectations because of “one-off merger and integration costs”, streamlining its debt portfolio, the 1% rent reduction and a decision to pay care staff the real living wage.

Susan Hickey, chief financial officer at Peabody, said: “The financial and operational performance for 2018 is an especially strong result, against a backdrop of continued rent reductions and upfront merger costs.”

The landlord owns 55,700 homes across London, the East and the South East, and invested £250m in new homes and £68m in existing ones.

Its accounts showed total group turnover at £609m, against £558m in 2017. The operating margin on social housing “held relatively steady at 32%”, while the overall margin was 35%, down from 40% because of lower profits on sales of fixed assets, and what Peabody called “a strong but lower margin on open market sales of 26%”, down from 33% the previous year. There were also abortive development costs of £7m.

Within the £609m turnover, social housing lettings accounted for £365m, equivalent to 60% (£350.4m and 63% in 2017).

First tranche shared ownership turnover was £49.2m, up from £43.2m, and market sale £135m, against £92.2m in 2017.

Peabody said it built 949 homes last year, exceeding its 686 target, and aimed to complete in excess of 1,300 in 2018/19.

It started 1,193 homes in 2017/18 and intended to start almost 2,700 this year and at least 2,500 a year from 2021.

Tenant arrears increased slightly to £28.9m from £27.3m, of which Peabody said £18.4m had been fully provided for.

Current tenant arrears in March stood at £17m, equivalent to 4.9% of the annual receivable, the same level as the previous year “despite welfare reforms rolled out to date, including the household benefit cap, occupation size criteria and the first stages of Universal Credit”, it said.

Peabody’s gearing – the ratio of debt to assets – was down one percentage point to 31%. It had total undrawn, fully secured facilities of £744m – compared with £546m in 2017 – of which £659m was immediately available and £85m was an uncommitted private placement shelf facility. The group had available cash of £117m, down from £154m a year earlier.

It will adopt a single measure of customer satisfaction for this year but in 2017/18 this stood at 78% for the original Peabody and 82% for Family Mosaic.

Following the Grenfell Tower fire, Peabody said it had found the resources needed to meet fire safety and other requirements from existing budgets or forecasts with no impairment charge required.

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