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Optivo warns on surplus as rent voids and fire safety costs hit
Optivo has warned that its annual surplus will fall this year because of lower shared ownership sales, rising fire safety costs and higher void rates.
The 45,000-home landlord, which is part of the G15 group of large London housing associations, issued the warning as it revealed its pre-tax surplus has slid 26% to £28m in the six months to the end of September, down from £38m at the same point last year. Turnover was £162m, up slightly from £161m halfway through 2018.
Sarah Smith, chief financial officer at Optivo, said it expected lower surplus for the year due to “sector headwinds”.
But she added: “We have the financial capacity and flexibility to keep on delivering great services to our residents, prioritise safety and keep delivering more affordable housing.”
Optivo becomes the latest major London association to make this type of announcement after L&Q warned its annual surplus would come in below previous forecasts earlier this month.
Other G15 landlords Clarion and A2Dominion have also reported a fall in their half-year surpluses as conditions remain challenging.
In the update yesterday, Optivo said its shared ownership sales are “slower than anticipated”.
It currently has 222 unsold shared ownership homes, with 170 more than six months old. However “many” of these are reserved and some are being converted to rented social housing, the landlord said.
Optivo also noted it currently has no open market homes unsold. It comes after the landlord revealed in April it was cutting up to 700 market sale homes from its development plans.
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On fire safety, Optivo said it is seeing higher work costs after carrying out fire risk assessments. The association said it no longer has buildings with Grenfell-style aluminium composite material cladding above four storeys, but added: “We anticipate more costs as more information and guidance come out.”
On voids, the association said it has seen a “higher than usual” number of voids with nearly half without any notice.
Losses from voids as a percentage of annual rent rose to 1.6% compared with 0.7% in the same period last year.
Optivo also blamed the fact that properties had been returned in poor condition, which meant more work was needed to relet them.
As a result, average relet times have jumped from 37 days at last year’s half-year to 69.5 days.
Optivo said it is also converting some of its 23 sheltered housing facilities with high voids as demand has weakened.
The association completed 145 homes in the half-year compared with 259 in the first six months of 2018, but it started 652 homes, up from 274 in the same period last year. It is targeting 1,500 new homes a year.
On its financial position, Optivo said it has arranged three new medium-term revolving credit faculties totalling £200m and sold £100m retained bonds. It also arranged £25m near-term loans and retired £17.5m of legacy debt.
“We have enough liquidity to meet our future capital commitments,” the group said.
In August, credit rating agency Moody’s downgraded Optivo to A2 with a negative outlook as the agency pointed to its “development ambitions” in the face of a “softening property market and weaker economic outlook”.
Moody’s said it expected Optivo to increase its debt – which currently sits at £1.37bn – to £1.9bn by the end of its 2022 financial year.
