Interview: A blueprint for the future?

After being taken to the brink and thrust under the political spotlight, Johnnie Johnson Housing Trust (JJHT) is back in talks with funders about support for its vision for a ‘premium affordable’ housing product for older people.

‘We’re now where the organisation should have been if it hadn’t been for the difficult period,’ says Paul Dolan, who joined as CEO in January 2014, and was welcomed with a call from the Homes and Communities Agency about a downgrade.

By February, the group had dropped from the top G1/V1 to non-compliant G3/V3 amid cost overruns and late delivery of a large development scheme, a telephony fraud, failure to comply with its adopted code of governance, and its late submission of accounts – which meant a technical breach of covenants. It had to defer significant development and stock investment programmes, and enter into a voluntary undertaking.

Eighteen months later, the group has returned to a compliant G2/V2 following a unique in-depth analysis and ‘competitive process’ with three other RPs looking at whether to merge or stay independent, which Mr Dolan says is feeding into work being done by Savills and the National Housing Federation’s steering group on a new merger code for the sector.

‘Nobody has been on V3 and come out the other side like we have; and that’s not gloating – but it’s different, and it’s positive for the sector,’ says Mr Dolan.

‘Organisations don’t necessarily have to merge – they can [stay independent] if they take the right approach, and are rigorous and robust about how they respond.’

As part of the process, Mr Dolan says the regulator was ‘very clear’ that JJHT needed to demonstrate its ‘future purpose, its ‘raison d’être’, and how it should challenge itself’.

That meant ‘rebuilding a baseline business plan’, and establishing ‘Living Longer, Living Better’, centred around providing a ‘premium affordable’ product for the ageing population in a bid to address one of the key challenges facing the sector – the ‘deficit’ of quality supply outside of extra-care for 55 to 85 year-olds.

Political spotlight

The group had become a particular  focus of Clive Betts MP and the Commons’ communities and local government committee in 2014, which had responded to Cosmopolitan HG’s near-insolvency (see p.3) by criticising the HCA’s assessment of RPs’ financial positions as confusing and lacking in transparency.

As the regulator went through its own period of self-reflection, chair of the HCA’s regulation committee, Julian Ashby, wrote to Mr Betts in May 2014 to explain the HCA’s approach to JJHT,  and confirmed how direct intervention can trigger loan covenant breaches.

Mr Dolan agrees JJHT was ‘at the front of the queue’ as the first since Cosmopolitan to slip into a non-compliant V3. He says the group had become insular, but still had the ‘nucleus of a strong organisation’.

Consultant Peter Cleland was drafted in to complete five financial reports in a fortnight, to show to the regulator that the group was viable.

A new and experienced board was put in place and there was a major focus on a stock condition survey and asset revaluation, completed by Savills ‘at a rapid pace’, says Mr Dolan.

Independence vote

Part of the process was also an analysis of whether the group had an independent future.

It centred around being clear what the JJHT mission was and whether a partner organisation could enhance it.

Mr Dolan explains there were three considerations; plan A, for independence; plan B, for merger; and plan C, for rescue.

Plan C was quickly dismissed after the five reports and the corrections over cashflow and treasury management.

Campbell Tickell then performed a ‘partner mapping’ exercise to identify potential RPs for merger, based upon strategic fit, geography, regulatory ratings and financial health.

Along with JJHT itself, the three RPs were asked to provide an expression of interest to present to the board. 

The analysis covered five key points, including strategic fit and responding to the next housing crisis; investment in refurbished and maintained housing;  delivery model; investing in new homes; and developing the brand.

While JJHT said it could invest £30m over 10 years, one RP said it would invest £25m and the third did not provide a figure. The group also set out what management and service charge savings it could make, which the bidding RPs did not. The board decided the trust would improve VfM ‘faster and to a greater degree’ as an independent.

Asked if a self-assessment approach leaves questions around whether the sector needs clearer due diligence, Mr Dolan says there is a lesson about ‘being  clear about the mission’.

‘I don’t think there is that clarity [in some RPs]. Having that clarity of your own purpose, that’s why this was really powerful for us as an organisation.’

Mr Dolan says the approach could be used as a ‘blueprint’ for others, particularly in anticipation of further consolidation following policy changes announced in the July Budget.

JJHT was operating with no available headroom on its loan facilities at March 2015, and a liquidity position made up of £7m of assets, £12m in deposits – including £7.5m in cash – and a £1m overdraft.

Mr Dolan adds funders are saying they have more confidence in organisations that have ‘been through the wringer and come out the other side’.

Paul Dolan will be speaking about merger at the Social Housing Annual Conference on 12 November 2015