Decision

Previous regulatory judgement: Estuary Housing Association Limited (28 April 2021)

Updated 31 January 2024

Applies to England

RSH Narrative Regulatory Judgement

• Provider: Estuary Housing Association Limited
• Regulatory code: L3535
• Publication date: 28 April 2021
• Governance grade: G2
• Viability grade: V2
• Reason for publication: Governance downgrade and changed basis for viability grade
• Regulatory route: In Depth Assessment

This judgement downgrades our assessment of Estuary Housing Association Limited’s governance from G1 to G2 and confirms its existing V2 grade for viability. Estuary Housing Association Limited (Estuary) continues to meet the requirements on governance set out in the Governance and Financial Viability Standard. However, following an In Depth Assessment we have concluded that it needs to improve aspects of its governance arrangements to ensure continued compliance.

Estuary needs to improve the effectiveness of its business planning and risk management framework to ensure continued compliance. Its approach is not adequately integrated and performance monitoring does not align to strategic objectives.

Financial reporting requires improvement to ensure the board is fully sighted on emerging issues. Estuary’s stress testing does not sufficiently demonstrate the financial impact of the range of risks to which it is exposed. The impact of different scenarios on its cash or security position have not been tested and a clearer demonstration of the impact of risks before mitigation would strengthen the board’s business planning and decision making. Further development of early warning triggers and mitigation strategies is also required to assist the board in recognising and controlling the impact of risks.

Estuary needs to strengthen its approach to Value for Money (VfM) to ensure that it is compliant with the VfM Standard. It does not have measurable plans or targets that are demonstrably linked to its strategic objectives. Monitoring and reporting arrangements require improvement to enable the board to challenge the executive on VfM performance. A lack of measurable plans and VfM targets makes it difficult for stakeholders to hold the organisation to account for delivery.

The regulator has assurance that Estuary complies with the financial viability elements of the Governance and Financial Viability Standard and that its financial plans are consistent with and support its financial strategy. Estuary has an adequately funded business plan, sufficient security in place and is forecast to meet its financial covenants.

Estuary does, however, have material exposures which it needs to manage to ensure continued compliance, including high levels of debt and substantial investment in its existing stock, which place pressure on interest cover. The provider’s financial plan demonstrates increasing reliance on uncertain cash flows from sales income, exposing Estuary to the cyclical risks of the housing market. Estuary is dependent on sales to meet covenant requirements and forecast headroom is limited. While Estuary’s liquidity covers its immediate cashflow requirements, the position requires careful management.

Other providers included in the judgement

None

About the provider

Origins

Estuary is a co-operative community benefit society with charitable status. Its strategy is to deliver high quality housing, including care and support, and to develop new homes as its capacity allows.

Registered Entities

Estuary is the only registered entity in the group.

Unregistered Entities

Estuary has two unregistered, wholly-owned subsidiaries:

Accession Homes Limited (AHL) is a profit-making subsidiary, primarily for the purpose of developing property for outright sale. Its profits are gift-aided to Estuary. AHL has a 50% stake in a joint venture with Hampstead Homes Limited, a private development company.

Estuary Homes Design Limited is a tax efficient development subsidiary.

Geographic Spread and Scale

Estuary owns and manages about 4,400 homes across a range of tenures. Over 80% of the homes are rented housing for general needs, a small proportion of which are at intermediate and market rents. It also has about 500 shared ownership units and about 260 supported housing bedspaces.

The majority of Estuary’s stock is in the outer East London Boroughs and South Essex, with a small number of private rented homes situated in East Suffolk.

Staffing and Turnover

Estuary employs 303 full time equivalent staff. Its turnover for the year ended 31 March 2020 was £30.5m.

Development

On average over the last three years Estuary has developed around 100 new homes per year, which it plans to increase to around 150 homes per year from 2023.

About our judgements

Key to Grades

Governance:

• G1 (Compliant): The provider meets our governance requirements
• G2 (Compliant): The provider meets our governance requirements but needs to improve some aspects of its governance arrangements to support continued compliance
• G3 (Non-compliant): The provider does not meet our governance requirements. There are issues of serious regulatory concern and in agreement with us the provider is working to improve its position.
• G4 (Non-compliant): The provider does not meet our governance requirements. There are issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action.

Viability:

• V1 (Compliant): The provider meets our viability requirements and has the financial capacity to deal with a wide range of adverse scenarios.
• V2 (Compliant): The provider meets our viability requirements. It has the financial capacity to deal with a reasonable range of adverse scenarios but needs to manage material risks to ensure continued compliance.
• V3 (Non-compliant): The provider does not meet our viability requirements. There are issues of serious regulatory concern and, in agreement with us, the provider is working to improve its position.
• V4 (Non-compliant): The provider does not meet our viability requirements. There are issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action.

Definitions of Regulatory Processes

In Depth Assessment (IDA): An IDA is a bespoke assessment of a provider’s viability and governance, including its approach to value for money. It involves on-site work and considers in detail a provider’s ability to meet its financial obligations and the effectiveness of its governance structures and processes.

Stability Checks: Based primarily on information supplied through regulatory returns, a Stability Check is an annual review of a provider’s financial position and its latest business plan. The review is focused on determining if there is evidence to indicate a provider’s current judgements merit reconsideration.

Reactive Engagement: Reactive engagement is unplanned work which is triggered by new information or a developing situation which may have implications for a provider’s current regulatory judgement.

Stability Checks and Reactive Engagement: In some cases, we will publish narrative regulatory judgements which combine evidence gained from both Stability Checks and Reactive Engagement.

For further details about these processes, please see ‘Regulating the Standards’.