Annual Report & Accounts 2020 & Accounts Annual Report The Housing Finance Corporation Limited Annual Report & Accounts 2020 The Housing Finance Corporation Limited A Registered society under the Co-operative and Community Benefit Societies Act 2014 Registered No: IP25862R 3rd Floor, 17 St Swithin’s Lane, London EC4N 8AL T: 020 7337 9920 F: 020 7337 9935 E: [email protected] www.thfcorp.com Perivan 259039 Contents THFC Group Structure The Housing Finance Corporation Limited Purpose 1 T.H.F.C. (Indexed) T.H.F.C. (Indexed 2) T.H.F.C. (First T.H.F.C. (Social Housing Highlights 1 Limited Limited Variable) Limited Finance) Limited Chair’s and Chief Executive’s Joint Statement 2 T.H.F.C. (Services) Business and Financial Review 6 Limited Group Report 7 UK Rents (Holdings) T.H.F.C. Affordable Housing Directors’ Report 10 bLEND Funding Plc Limited (Capital) Plc Finance Plc Directors 19 THFC Group Loans 23 UK Rents UK Rents Group Source of Funds 28 Trustee Limited (No.1) Plc Independent Auditor’s Report 30 THFC Related Companies Group Statement of Comprehensive Income 32 Haven Funding Plc Group Statement of Financial Position 33 Group Statement of Changes in Equity 34 Haven Funding (32) Plc Group Statement of Cash Flows 35 T.H.F.C (Services) Sunderland (SHG) Limited Finance Plc THFC Statement of Comprehensive Income 36 THFC Statement of Financial Position 37 Harbour Funding Plc THFC Statement of Changes in Equity 38 T.H.F.C. (Funding No.1) Plc THFC Statement of Cash Flows 39 T.H.F.C. (Funding No.2) Plc Notes to the Financial Statements 40 Five Year Financial Record 69 T.H.F.C. (Funding No.3) Plc THFC Group Structure IBC Sunderland THFC Related Companies IBC Haven Haven Funding Harbour (SHG) T.H.F.C (Funding T.H.F.C (Funding T.H.F.C (Funding Funding Plc (32) Plc Funding Plc Finance Plc No.1) Plc No.2) Plc No.3) Plc Nominal Value Nominal Value Nominal Value Nominal Value Nominal Value Nominal Value Nominal Value £241,208,755 £67,600,000 £206,336,361 £212,802,000 £235,205,000 £370,850,000 £1,015,300,000 Issue Date Issue Date Issue Date Issue Date Issue Date Issue Date Issue Date 11.03.97 12.02.98 28.08.03 27.06.01 21.12.04 08.07.09 11.10.11 Business Quoted Quoted Quoted Quoted Quoted Quoted Quoted Activity Eurobonds, Eurobonds, Eurobonds, Eurobonds, Eurobonds, Eurobonds, Eurobonds, proceeds on-lent proceeds on-lent proceeds on-lent dedicated issue proceeds on-lent proceeds on-lent proceeds on-lent to 9 borrowers to 6 borrowers to 3 borrowers to Gentoo Group to 16 borrowers to 19 borrowers to 58 borrowers on-lent via THFC via THFC via THFC via THFC (Capital) Plc Management Company Company Company Company Company Company Company Activity Secretariat Secretariat Secretariat Secretariat Secretariat Secretariat Secretariat Finance function Finance function Finance function Finance function Finance function Finance function Finance function Administration Administration Administration Administration Administration Administration Administration Credit monitoring Credit monitoring Credit monitoring The information on this page does not form part of the company’s or group’s financial statements. T.H.F.C (Services) Limited provides management services to all the above companies. Purpose THFC has served the funding requirements of housing associations for the last 33 years. Our purpose is to enable regulated housing associations to achieve their social objectives and meet housing needs in their local communities. We do this by: l sourcing funding from a range of institutional investors to deliver cost-efficient, responsible funding through the economic cycle; and l operating as a non-profit-distributing finance company utilising our expertise, reputation and strong relationships. Highlights £3,387k (2019: £5,809k) £7,454m (2019: £7,333m) Group pre-tax surplus THFC group loan book 8000 8000 7000 6000 6000 5000 4000 4000 3000 2000 2000 1000 0 0 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 £8,565k (2019: £10,595k) 162 32,000+ Group total income* (2019: 166) Homes Funded under 12000 Housing Associations AHF 10000 lent to 8000 6000 4000 2000 0 2015 2016 2017 2018 2019 2020 *(includes all fees and investment income on short-term deposits) The Housing Finance Corporation Limited Annual Report & Accounts 2020 Page 1 Chair’s and Chief Executive’s Joint Statement George Blunden Piers Williamson Chairman Chief Executive The year under review will most likely be remembered for borrowers to the pool if their addition would result in the two overriding externalities: the vote to exit the European then prevailing bLEND public rating being downgraded. Union and, towards the end of the year, the coronavirus Although the year was dominated by the success achieved pandemic and the subsequent descent into lockdown. It through bLEND, THFC, through T.H.F.C. (Funding No. 3) Plc is in this context that we are pleased to be able to report (“Funding No. 3”), continues to provide finance to in excess that The Housing Finance Corporation (“THFC”) was still of 160 housing associations spread across the UK, from the able to demonstrate solid growth and further consolidate very largest to small community-based organisations. We its position as the leading aggregator in the social housing were delighted to continue to support the latter this year sector. by sourcing very competitively priced long-term funding Results for the Year for two smaller housing associations, supporting both community-based and black, asian and minority ethnic In financial terms, an after tax surplus of £2.7m took THFC’s developments. Apart from the second bond issued by our reserves over £40m for the first time in its 33-year history. This subsidiary, Affordable Housing Finance Plc (“AHF”), Funding result was underpinned by four new transactions through No. 3 is the largest housing association bond in issue, with our funding subsidiary Blend Funding Plc (“bLEND”). These over £1bn nominal bonds (including retained bonds) in were across two long-term maturities and totalled £110m issue at year end. By continuing to augment issuance with expanding the bLEND borrower base by two housing a small proportion of retained bonds we have been able associations and further consolidating its A2 Moody’s to offer competitively priced smaller bond drawdowns to long-term rating. Since year-end and lockdown we have customers who would not otherwise be able to access successfully raised a further £125m via bLEND (including the capital markets in their own right. Supporting smaller £100m for a single new customer), thus demonstrating housing associations in this way will continue to be a that all aspects of the group’s funding activities can be priority for us in the year ahead. sustained through remote working. This latest tap took overall nominal outstanding loans for bLEND to £515m, We conducted our first THFC rating review under S&P’s new achieving its original five-year growth plan in under three guidelines for loan aggregators and were pleased that our years, considerably exceeding our expectations. rating outcome not only re-affirmed THFC’s ‘A’ long-term rating but also confirmed that elements of the rating bLEND’s public rating is a composite of the individual remained “strong” in the underlying categories. borrowing housing associations, combined with liquidity enhancement provided by interest service reserves As the existing provider of £3.2bn of long-term guaranteed amounting to one year’s interest. At the year-end there financing through AHF, we submitted a strong and were five borrower groups within bLEND (post year end this competitive bid to the Ministry of Housing, Communities increased to six). All but one of these enjoy a private rating and Local Government for the Affordable Homes from Moody’s with one, Hightown Housing Association, Guarantee Scheme 2020 (AHGS 2020). We believed we obtaining a public Moody’s rating in the year. All borrowers were ideally placed to deliver the new scheme and whilst are required to support the rating process throughout the shortlisted, we were ultimately unsuccessful in being life of their loan and bLEND undertakes not to add further selected as the preferred partner. The Housing Finance Corporation Limited Annual Report & Accounts 2020 Page 2 Whilst this was a great disappointment, even without Exiting the European Union the new scheme, our existing bLEND and THFC products For much of the financial year there was unprecedented remain relevant, particularly in the devolved nations political uncertainty in the UK as to the nature of the UK’s (AHGS 2020 is limited to English based borrowers only) potential exit from the EU. This translated into a number of and also in the provision of long-term fixed rate funding impacts on housing associations, particularly those with to refinance maturing bank debt. We have added new large development programmes. Early on, there were customers to our extensive base this year and expect to signs of a slowdown in demand for homes built for sale continue to do so in the coming year. (albeit demand for shared ownership appeared to hold Coronavirus Pandemic up outside London). However, there are early signs of the market, particularly for affordable home ownership, The ongoing coronavirus outbreak was declared a reviving and housing associations have been conservative pandemic on 11 March, and the UK was put into lockdown in mitigating any slowdown in sales activity with available on 23 March to attempt to limit its spread. We are able committed credit and cash balances. to report that shortly before the end of the financial year all THFC staff were working remotely with no dilution in The other BREXIT related area of concern for many either our service offering or the checks and controls housing associations is cost inflation; both in labour and that are an essential part of any finance business.