Social Landlords in Scotland: Shaping up for improvement

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Social Landlords in Scotland: Shaping up for improvement.5.3 Some landlords have reported new opportunities to increase their asset basein recent months as a result of lower property and land values but, morecommonly, there are clearly significant asset management issues facinglandlords during the current economic downturn and liquidity crisis - forexample, reduced sales income, falling stock value and what this means forprivate lending covenants in RSLs, and landlords’ relationship withcontractors and their exposure in the current climate. Asset managementbecomes even more critical in less benign times. It forces hard decisionsabout what sort of business landlords want or can afford to be in, and what anorganisation’s focus should be in terms of investment, development,rationalisation, and regeneration.Scottish Housing Quality Standard (SHQS)5.4 More than four out of five households in Scotland’s social rented sector live inhouses that are more than 25 years old. So, landlords’ management of, andinvestment in, existing houses will often have a greater impact on theircustomers than building new houses. The Scottish Government expects localauthority landlords and RSLs to achieve the Scottish Housing QualityStandard (SHQS) by 2015.5.5 The SHQS was introduced in 2004, and all organisations that we haveinspected are making some progress toward achieving the SHQS, with somemaking excellent progress. A small number of landlords are at significant riskof not achieving the SHQS for some of their houses, but the issues weidentify above around asset management and reliability of stock conditioninformation mean a larger number may be at risk. In total, RSLs haveindicated that it will cost over £600m (at today’s values) to comply with theSHQS. Over 80% have told us they will use internally generated resources tomeet these costs. But some have estimated that they will need to borrowadditional private finance, amounting to around £215m, with the balancebeing met from internally generated resources.5.6 We have published on our website a separate report on the progresslandlords are making towards meeting the SHQS and we will continue tomonitor progress by individual landlords as part of our ongoing regulatoryengagement.31
Social Landlords in Scotland: Shaping up for improvement.6. RSL finances6.1 Given the financial climate, we have increased our focus on the financialposition of RSLs. We remain of the view that the sector overall is relativelystable financially, and that many RSLs continue to represent good investmentopportunities for lenders, and good investment partners for public funders.We have also made it clear that, particularly in response to the currentenvironment, we expect RSLs to be reviewing their financial forecasts;assessing any exposure to the prevailing housing and financial markets,managing short term liquidity; and monitoring compliance with financialcovenants.6.2 We review the audited accounts of RSLs and publish key financial ratios onour website. This section of our report highlights the key financial trendsemerging from that review and the financial survey we conducted in January2009. The aggregate information presented here will mask significantvariations in the financial performance of particular types of organisations.Key statistics6.3 These figures provide a summary picture of the finances of the sector at theend of March 2008:• turnover stood at £1,012 million, increasing by 9% on the previous year;• operating costs were £899 million – nearly 90% of turnover and anincrease of 12% from last year;• salary costs are the single largest item of operating expenditure, at £307million or 34% of operating costs;• the sector’s gross surplus of £112 million is equivalent to £407 per unit;• operating surplus was around 11% of turnover, with the net surplusaround 6%;• the total cash balance was just over £300 million; and• the interest cover ratio on a sector-wide basis fell slightly to 138% asprivate borrowings increased, but is still comfortably above the industrybenchmark of 110%.32
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Social Landlords in Scotland: Shaping up for improvement

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