Housing New Zealand Investor Update - March 2019
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Housing New Zealand Investor Update March 2019 Matthew Needham Chief Financial Officer Matthew.needham@hnzc.co.nz Sam Direen Treasurer Sam.direen@hnzc.co.nz
CONTENTS 1. Overview 2. Customer strategy 3. Asset management strategy 4. Financing approach 5. Sustainability 6. Financial overview 2
1. Overview 3
OUR VISION: BUILDING LIVES AND COMMUNITIES BY HOUSING NEW ZEALANDERS
New Zealand’s largest residential landlord
We own or manage approximately More than
64,000
properties
185,000
people live in our houses
Which is 4%
of New Zealand’s
4.9m population
Value of group assets
$27 billion
Over Approximately
98%
occupancy rate
5,500
families placed into homes last year
4
OUR ROLES AND PRIORITIES
We act on our key roles by focusing activities around five priorities
State housing
Build more houses, Reduce our cost of Optimise the
faster building and, in turn, management of our
Public housing influence cost in the homes
sector
market leader
Affordable housing
Increase our Use our experience to
understanding of our influence performance
customers and put their in the housing sector
Transitional housing needs at the centre of
our decisions
5
OUR LEGAL STRUCTURE
HNZC is a Statutory Corporation set up under the Housing Corporation
Act (1974) and a Crown Agency under the Crown Entities Act (2004)
• 97% of Group assets • Manages Crown land • Established in May 2018
• 85% of Group debt at Hobsonville • Constructs and sells
• Issuer of market debt • Master plans large-scale affordable homes to the public
developments in Auckland
6
OUR VISION
Building lives and communities by housing New Zealanders
7
2. Our customer strategy 8
CUSTOMER STRATEGY
Striving to become a world-class public housing provider
Achieving our vision and becoming a world-class public housing provider requires a comprehensive strategic response.
To be prioritised for public housing, customers usually present with a combination of characteristics and needs:
• Mental health concerns
• Issues with drugs and alcohol
• Problems with anger and antisocial behaviour
• Disabilities
• Socially disconnected and with life skill
challenges
9
CUSTOMER STRATEGY
Vision and goals
Vision Goals
• We listen and understand the needs of our current
Our customers live well, customers and anticipate the needs of our future
with dignity and stability, customers
in connected communities • Customers are trusted, feel empowered, and are
involved in our decision making
• We build trust and connections between our
customers and their communities
• We deliver bespoke services and homes to target
groups that have unique needs, now and in the future
• We work collaboratively with the social sector to
enable the delivery of services to our customers
10CUSTOMER STRATEGY
New initiatives underway to provide meaningful change
Supported housing Intensive Tenancy Work with
developments Management other agencies
New high-density supportive Specialised resources for Target specific, high-(social)
housing planned for Greys addressing health and wellbeing value cohorts (Oranga Tamariki,
Avenue and Rolleston Street Corrections)
Starting to understand and
Targeting vulnerable/homeless formalise local partnerships Potentially a new commercial and
operating model
113. Asset management strategy BEFORE AFTER 12
OVERVIEW
Becoming New Zealand’s largest residential developer, with an increasing state house build
1,040 1,480
2017/18 (actual) 2018/19 (forecast)
>7,500
over the next four years (forecast)
13WHY WE ARE BUILDING
The largest build programme in decades has three key drivers
Growth in the public Requirement for more Significant renewal and
housing register affordable housing realignment requirement
• Public housing register up 73% on • New Zealand housing is among the • Average age of houses is around 45
the year prior most unaffordable in the world years – many are cold and damp
• Majority of growth in Priority A • House price to incomes remain very • Over 45,000 homes are due for
category (most at risk) high, particularly in Auckland renewal in the next 20 years
Source: Ministry of Social Development Source: Reserve Bank of New Zealand Source: Housing New Zealand
14WHERE WE ARE BUILDING
Around half of all new builds planned for Auckland, with the remainder spread across the country
AUCKLAND
Auckland
1.6m people (34% of
NZ’s population)
28,200 state houses (44%
of HNZ’s total
stock)
9th least affordable housing
globally (Demographia, 2018)
24,300 houses (state, affordable,
market) planned to be
built by 2026
15INDUSTRY SHAPING Using scale and innovation to deliver new housing at lower cost Leveraging the build programme to lower costs • Scaled-up procurement practices • Supplier panels • Standardised designs to speed up consent process Innovation and new construction methods • Offsite manufacturing • Use of cross-laminated timber • Minimum Homestar 6 certification for all new builds (except apartments) contracted from 1 July 2019, apartments from 1 January 2021 16
ENVIRONMENT STRATEGY
Housing New Zealand has developed a new Environment Strategy
Environmentally Empower
Sustainable,
Our Vision sustainable customers to live
resilient assets
operations sustainably
17ENVIRONMENT STRATEGY
Focus and initiatives
1 Reduce emission 2 Reduce waste 3 Green communities
Under this outcome we will be aiming Under this outcome we will be aiming Under this outcome we will be aiming
to reduce the emissions produced by to reduce the waste produced by our to improve native flora and fauna,
our homes, our construction homes, our construction programme green space and air quality in our
programme and our operations. and our operations. communities.
Initiatives • Reduced corporate air travel • Reduced construction waste
In 2019 we will be • Reduced customer car reliance • Reduced customer household waste
carrying out detailed • Customer engagement and co-design • Understand the implications of climate
investigation on the • Reducing emissions released during change in our portfolio
shortlisted initiatives: construction • Investigate requirements for solar power at
• EV ready developments our developments
• Electrifying our fleet • Environmental standards
184. Financing approach 19
CREDIT RATINGS – OVERVIEW
“HNZC is essentially an arm of the Government”
S&P Global Ratings, Dec-18
S&P Global Ratings’ assessment of HNZL and HNZC
• AA+ (positive) long-term local currency credit ratings
• Ratings equalised with the New Zealand sovereign
• Benefit from an “almost certain” likelihood of receiving
government support in the event of financial distress
• ‘aa’ stand-alone credit profiles
• No explicit government guarantee
AA+ (positive)
Issuer credit rating
* Note, GRE = Government-Related Entity
20FINANCING SNAPSHOT (AS AT 1 MARCH 2019) Existing Crown loans refinanced on maturity, while new debt is sourced from the market Crown loans Maturity profile • HNZL (issuer) $1,545m • HNZC (parent) $431m • Annual appropriation allows for refinancing Market debt • $3.05b of debt can be sourced from the market under HNZ’s Borrowing Protocol • $800 million bonds issued to date, $150 million commercial paper on issue • Expect to issue over $1 billion of bonds by June 2019 and $2.9 billion by June 2022 21
DEBT CAPITAL MARKET FINANCING
HNZL medium term note and commercial paper programmes
Medium term note programme
• Notes offered are:
— unsecured and unsubordinated
— subject to negative pledge provisions
— repo eligible with the RBNZ
— offered to domestic and offshore (in certain jurisdictions) institutional investors
• Approved Issuer Levy paid by HNZL
• Expect to continue with syndication for majority of issuance, open to reverse enquiry
Commercial paper programme
• $500m programme limit
• Regular fortnightly tenders of $25m (3-month paper)
225. Sustainability 23
SUSTAINABILITY FINANCING FRAMEWORK 1
Our Sustainability Financing Framework links financing to social and environmental outcomes
• HNZ’s vision for sustainability is strategically aligned with Government’s commitments to international agreements
including the Paris Agreement and the United Nations Sustainable Development Goals (SDGs 2).
• HNZ has developed a Sustainability Financing Framework which allows HNZ to raise finance through the issue of green
bonds, social bonds and sustainability bonds, as well as borrowing green loans. The Framework is aligned with the ICMA
Green Bond Principles 2018 (GBP), Social Bond Principles 2018 (SBP), Sustainability Bond Guidelines 2018 (SBG) and
the APLMA Green Loan Principles (2018).3
• HNZ may also choose to seek Climate Bond Standards certification for future green bonds issued under this Framework.4
• The Framework has been developed to further embed environmental and social considerations in processes and practices
across core HNZ business activities, and to demonstrate alignment and contribution towards meeting the SDGs.
• Financing raised under this Framework will highlight the positive environmental and social outcomes of HNZ business
activities and support HNZ’s strategy and vision.
1. HNZ Sustainability Financing Framework : https://www.hnzc.co.nz/about-us/investor-relations/
2 UN SDGs : https://www.un.org/sustainabledevelopment/sustainable-development-goals
3. ICMA GBPs, SBPs and SBGs: https://www.icmagroup.org/green-social-and-sustainability-bonds/
4. Climate Bonds Standard: https://www.climatebonds.net/standard/
24SUSTAINABILITY FINANCING FRAMEWORK
Use of Proceeds
• Proceeds raised will be earmarked for financing, or re-financing, projects that deliver positive environmental and social
outcomes, meet the eligibility criteria set out in the Framework and which align and contribute towards meeting the SDGs.
• Only expenditures that have been incurred after 30 June 2018 will be eligible for financing under the Framework.
• Proceeds raised will only be allocated to construction of new, or retrofit of existing, social housing and not for other
categories of housing required by the Government’s priorities such as emergency, transitional, affordable and market
housing.
• In order to identify eligible projects and expenditures which support and contribute towards the SDGs, HNZ has utilised
guidance published by ICMA, the United Nations and APG Groep NV.
GREEN SOCIAL
Energy Efficiency Socioeconomic
Green Buildings Renewable Energy Sustainable Land Terrestrial & Aquatic Food Security
Employment Generation Advancement
Use Biodiversity & Empowerment
Conservation
Climate Change Eco-efficient Affordable Basic
Waste & Pollution Affordable Housing
Clean Sustainable Water & Adaptation & Products & Infrastructure Access to Essential
Control
Transportation Wastewater Resilience Technologies Services
25SUSTAINABILITY FINANCING FRAMEWORK
Project Evaluation and Selection
• A Sustainability Financing Working Group (SFWG) will carry out the evaluation and selection process to ensure that the
proceeds are earmarked for financing only eligible projects and expenditures.
• The SFWG consists of a minimum of senior representatives from the HNZ Treasury Team and Financial Control Team, as
well as Finance Business Partners.
• Once eligible projects are earmarked for financing under this Framework, they are added to the HNZ Sustainability
Financing Projects Register (Register).
• An annual compliance/assurance review will be completed by Sustainalytics, or an appropriate assurance provider, to
review compliance of all outstanding sustainable financing transactions with the Framework.
• An overview of HNZ’s processes are detailed within the Framework and summarised below.
Annual
Eligible projects assurance and
Project Review &
SFWG approval added to compliance
identification approval by CFO
Register review
26SUSTAINABILITY FINANCING FRAMEWORK Management of Proceeds • Proceeds raised through HNZ sustainability financing transactions will be earmarked against the pool of eligible projects and expenditures identified in the Register. • The Register will be reviewed annually by the SFWG to account for any re-allocation, repayments or drawings on the eligible projects and expenditures within the pool. • The Sustainability Financing Register will contain relevant information including details of each sustainability financing transaction and of all eligible projects to be financed in alignment with the Framework. • Only eligible expenditures that have been incurred after 30 June 2018 will be eligible for financing under the Framework. • Pending allocation, the net proceeds from sustainability financing transactions will be invested according to the HNZ Group Treasury Policy. 27
SUSTAINABILITY FINANCING FRAMEWORK
Reporting
• HNZ will integrate sustainability financing reporting within the HNZ Group Annual Report.
• An annual Assurance/Compliance Review, specifically related to HNZ sustainability financing, will also be prepared by an
appropriate External Review Provider and published on the HNZ website.
• HNZ will provide annual reporting until all sustainable financing proceeds have been allocated, then updated on an
annual basis. This includes Summary Reporting, Allocation Reporting and Impact Reporting.
• HNZ will look to utilise environmental and social impact reporting indicators as described in the Framework leveraging off
guidance developed by the ICMA GBP and SBP Impact Reporting Working Groups, subject to the availability of
information and confidentiality requirements.
• The following information will be published on the HNZ website at: https://www.hnzc.co.nz/about-us/investor-relations/
Item Frequency
Framework At issuance of the first bond issued under this Framework
Second Party Opinion At issuance of the first bond issued under this Framework
Climate Bond certification At issuance of any Climate Bond certified Green Bond
Annual Review Annually for all outstanding Green, Social and Sustainability Bonds
HNZ Sustainability Bond report Annually for all outstanding Green, Social or Sustainability Bonds (incorporated in the HNZ annual report)
28SUSTAINABILITY FINANCING FRAMEWORK External Review • HNZ has engaged Sustainalytics to provide an external review in the form of a Second Party Opinion (SPO) on the Framework, and to confirm alignment with the 2018 ICMA GBPs, SBPs, and SBGs and the 2018 GLPs. • As described in the SPO Sustainalytics has assessed that the eligible use of proceeds will advance several of the SDGs. • HNZ will engage Sustainalytics, or an appropriate Assurance Provider, to provide an Annual Review and assurance that each outstanding sustainable financing transaction remains in compliance with the Framework. • The Sustainalytics SPO and future Annual Reviews will be publicly available on the Housing New Zealand website at: https://www.hnzc.co.nz/about-us/investor-relations/. 29
CASE STUDY
Redevelopment of 139 Greys Avenue
Key features
• 200 state homes
• 76 non-state homes
• 24/7 on-site support services
• 24/7 on-site security and concierge service
• Over 200 bike spaces
• Around 3,000 sqm of floor space for
communal, support services, HNZ office and
commercial space.
• For more info visit:
https://hnzc.co.nz/housing-developments-and-
programmes/greys-ave/
306. Financial overview 31
KEY FINANCIAL STATISTICS (HNZC GROUP)
Strong, stable and consistent financial performance
Financial Performance Financial Position
Year ended June June Year ended June June
($m) 2018 2017 ($m) 2018 2017
Revenue 1,338 1,318 Total assets 27,490 25,907
Expenses 842 864 Total liabilities 5,171 4,309
EBITDA 496 454 Total equity 22,319 21,598
Depreciation and amortization 259 246 Total debt 2,653 1,953
EBIT 237 208
Interest expense 84 87
Tax 49 16
Gains/(losses) (28) (40)
Net profit after tax 76 65
Credit Metrics
Cash Flow Year ended June June
($m) 2018 2017
Year ended June June
($m) 2018 2017 Liabilities / Assets 18.8% 16.6%
Operating cash flow 360 284 Debt / (Debt + Equity) 10.6% 8.3%
Investing cash flow (590) (346) Total Debt / EBITDA 5.3 4.3
Financing cash flow 697 89 EBITDA / Interest expense 5.9 5.2
32FINANCIAL PERFORMANCE
More than 85 percent of income received comes from the Crown
Revenue Expenses
Year ended June 2018 $m % total Year ended June 2018 $m % total
Rental revenue – income-related rent subsidy (IRRS) Repairs and maintenance 319 27%
814 61%
Depreciation on rental properties 237 20%
Rental revenue – tenants receiving IRRS 350 26%
Rates on properties 117 10%
Crown appropriation revenue 94 7%
Personnel 127 11%
Other 80 6%
Interest expenses 84 7%
Total 1,338 100%
Grants 81 7%
Third-party rental leases 53 4%
Water rates 33 3%
Depreciation and amortization on infrastructure assets 22 2%
Other expenses 112 9%
Total 1,185 100%
33KEY CREDIT SUMMARY
Strong and stable credit
Largest Critical
residential property owner to the delivery of Government’s
in New Zealand public housing programme
AA+ (positive)
S&P Issuer Credit Rating
equalized with the Crown
85%
of income received from
Conservative
treasury policies
the Crown
34OTHER INFORMATION
Investor relations
Credit ratings, borrowing programmes,
publications, additional information
https://hnzc.co.nz/about-us/investor-relations/
Direct contacts
Matthew Needham
Chief Financial Officer
Matthew.needham@hnzc.co.nz
Sam Direen
Treasurer
Sam.direen@hnzc.co.nz
35QUESTIONS AND ANSWERS
A chance for a discussion
OUR VISION
Building lives and
communities by housing
New Zealanders
36Disclaimer
This presentation has been prepared by Housing New Zealand Limited (HNZL). This representation or warranty as to the accuracy or completeness of the information in
presentation does not constitute or form part of, and should not be construed as, an this presentation and does not undertake to update it.
offer to sell or issue or the solicitation of an offer to buy or acquire any securities
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disclosure statement or other regulated offer document in relation to any offer of
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The information in this presentation is in summary form and must be considered in any Securities under the laws of any jurisdiction (including New Zealand) for which
conjunction with and subject to publicly available information of HNZL. It is of a such registration is required or otherwise to enable the Securities to be offered to the
general nature and does not constitute financial product advice, investment advice or public or under a regulated offer. This presentation may not be distributed or
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assumptions made by HNZL about circumstances and events that have not yet
occurred. Although HNZL believes these estimates, projections and assumptions to A credit rating is not a recommendation to buy, sell or hold any Securities and may
be reasonable, they are inherently uncertain. Therefore, reliance should not be be subject to suspension, change or withdrawal at any time by the assigning rating
placed upon these estimates or forward-looking statements and they should not be agency.
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The information in this document is given in good faith and has been obtained from
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accuracy, correctness and completeness cannot be guaranteed. HNZL makes no
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