G15 landlord sees surplus soar but fire safety spend estimate escalates

Last month G15 chair Geeta Nanda told Social Housing that the estimated £3bn figure for remediation across all G15 landlords was “only going to go up”.

 

In March, Optivo awarded a £120m contract to Engie for fire remediation works. As of February last year, the group had 102 blocks taller than 18 metres or that have six or more storeys, and 3,367 lower-rise blocks.

 

Optivo said fire safety had added £154 to maintenance costs per unit and £71 to its service charge cost per unit.

 

The group said it is “committed to exploring all cost recovery avenues to reduce the impact on our own costs and the recharge to leaseholders”. This includes third-party claims against developers, claims against warranty providers and the government’s Building Safety Fund, Optivo said.

 

The landlord has appointed a ‘liability processing officer’ and revealed it has 28 sites where it is assessing if a claim is possible and five sites that are “beyond this stage”.

 

As a result of its increased spend on fire safety, Optivo is easing up on its development plans. It is aiming to have started 5,500 new homes by 2025.

 

On decarbonisation of its stock, the association said it ended the financial year with 70.8 per cent of its homes having an EPC Band C rating or better, against a target of 68 per cent.

 

Longer term, it is aiming to have 80 per cent of homes hit this target by 2025 and plans to retrofit around 400 homes a year up to 2030. It currently has around 10,000 homes that need work to reach Band C.

 

Optivo is an early adopter of the Sustainability Reporting Standard for Social Housing and said it will publish its first report against the criteria by October.

Elsewhere, the annual report showed that Optivo suffered a “significant” pandemic-related hit to its 1,835-unit student portfolio.

 

Occupancy rates for the 2020/21 academic year were 75.3 per cent against a pre-pandemic set target of 97 per cent, the group said. Revenue fell to £12.7m compared to £16m the prior year, leading to an operating surplus of £0.5m.

 

Optivo said that “lower rent and higher void losses were partly offset by savings in staff and other operating costs”. However, the operating margin on the landlord’s student accommodation business was just four per cent, compared to 21 per cent the previous years.

 

The group sold an 800-unit student block in Southampton in February as part of a move to focus on London and Eastbourne, where it said demand is strongest.

 

Optivo’s core social housing lettings division performed more strongly. Turnover edged up to £268m, with the surplus from the division rising 11 per cent to £72m. The operating margin on social housing lettings was 26.8 per cent against 24.7 per cent the prior year.

 

The group’s overall operating margin was 23.6 per cent, up from 23 per cent the previous year.

 

Arrears reduced to 4.1%, the lowest level in three years, Optivo reported. Void rent loss was 1.1 per cent compared to 1.6 per cent the year before.

 

Sales from first-tranche shared ownership properties were flat at £31m, producing an operating surplus of £6.1m at a margin of 20 per cent. Rental income from shared ownership units rose from £25m to £27m, which Optivo said reflected an increase in homes completed and annual rent increases.

 

Turnover from open market sales was £15m, which saw an operating surplus of £2.4m on a margin of 16 per cent.

 

Sixty-one homes were completed for outright sale and 38 sold.

 

Like many of its peers, Optivo saw an impact on its completions and starts due to COVID-19. The number of new homes completed fell 17 per cent to 577. Starts dropped to 1,002, compared to 1,500 the previous year.

 

“We re-phased construction timetables due to lockdown and to accommodate safe working practices upon re-opening, and spent less on new homes than we expected at the start of the year,” the annual report said.

 

The group had 2,812 homes under construction at year end, compared to 3,064 at the previous year end.

 

Optivo invested £20m in existing homes, the same as the prior year.

 

In June last year, the group accessed the Bank of England’s Covid Corporate Financing Facility. Optivo said it has since rolled over this facility to March 2022.

 

In the year, net debt rose to £1.4bn from £0.9bn the year before, the group reported.

 

Optivo retained its G1/V1 status from the regulator last year, but its credit rating was downgraded by Moody’s from an A2 to A3, partly due to its growing debt.