p.2-3
The next two years sees a significant amount of capital expenditure as PHL fulfils its transfer promises and completes the refurbishment work on the East India Estates. This is reflected in the low EBITDA(MRI) ratios prior to 2016. The business plan does not include the cost of the refurbishment of Balfron Tower, which is expected to be carried out through a joint venture vehicle, with PHL receiving a split of the profits from sale. Other regeneration work will continue until at least 2020, in partnership with various development companies. PHL uses its land values to provide affordable housing with low capital outlay, whilst improving the built environment and providing community facilities including parks, retail spaces, health provision and schools. 

p.4
New units will be rented at either Affordable Rent (between 50% and 65% of local market rents) or at social rent for larger homes. A small number of shared ownership homes are now included in the development programme, but no property sales, apart from staircasing, are assumed after 2016. 
The proceeds from the sale of flats in Balfron Tower are now shown as being in 2014 in the forecast and, together with land sales and gift aid from the development companies, have a positive effect on cash flows, surpluses and margins. Component accounting has been applied to the financial statements for 2011-12, and there was no requirement for a restatement of the prior year’s accounts as refurbishment costs had already been capitalised. No capitalisation of repairs is shown in the forecast from 2016 onwards though it is expected that some repairs costs would be capitalised, improving the surplus position accordingly.

p.5
The operating environment in which housing associations are working is increasingly difficult. The housing and financial markets continue to present significant exposures, and the introduction of the Affordable Rent product creates additional challenges as well as opportunities. In addition reductions in government expenditure and welfare reform will impact on associations. PHL has good tenant profiling and has carried out work relating to financial inclusion for some time including the use of a local credit union. It is currently engaged in estimating the potential effect of the various reforms to benefits and has a good grasp of what issues are likely to affect its tenants. 

Key risks: Housing Market and land values Although PHL does not have a significant shared ownership programme at present this is likely to increase in future schemes. Current sales are forecast at £6.4m over the next four years and these are currently managed by Circle Living (the commercial arm of the Circle Group), which has a large and experienced sales team. However, key regeneration sites are dependent on developers selling outright market sale properties in order to subsidise the affordable homes. If land and property values fall, the subsidy would reduce, increasing the investment required from PHL. Although an area of deprivation, Poplar is currently seeing increasing house values with regeneration and private house developments making the area more desirable. New two bedroomed flats in the area start at around £250k, suggesting that the sales at Balfron should achieve the expected return. As further mitigation outright sale developments are built out last where possible, to enable higher values to be achieved, but if the economic downturn continues stagnating land values could impact on the regeneration programme.

p.6
Key risks: Refurbishment of Balfron Tower. 
The refurbishment of Carradale House (Carradale 88 units) and Balfron Tower (Balfron 146 units) is the most expensive of PHL’s decent homes programme at a total cost of £38m, including the cost of decanting residents. These buildings are grade II listed and of non-standard construction. Work has commenced at Carradale, with an expected completion date of August 2013, and some leaseholders have now decided to remain there. Some of the £6.6m costs will therefore now be recouped, but this carries its own risk if leaseholders have difficulty obtaining finance for the estimated £38.6k per flat. Balfron will become a leaseholder-only block. Most of the existing leaseholders have already sold their flats to PHL and few are now likely to remain. The cost of refurbishments for Balfron will be £90-100k per flat – considerably higher than for Carradale - and the business plan assumes that a joint venture partner will fund the refurbishment for an equity share in the sales. If a joint venture partner is not found, PHL will need to raise the £20m cost from its own resources and carry these costs until the flats are sold. The current plan includes the income from the sale of flats in Balfron Tower to the developer in 2014.