For profit provider fails regulatory standard

A north-west based “for-profit” provider of affordable homes has agreed to carry out a plan to improve its business after the social housing regulator found it in breach of the governance and financial viability standard.

Cheshire-based Auxesia Homes, which last year embarked on a growth plan to grow a portfolio of 1,300 Section 106-acquired properties by 2026, is the first ever for-profit landlord to have been found in breach of the regulatory standard.

In a judgment published this morning, the Regulator of Social Housing said Auxesia was “non-compliant with the Governance and Financial Viability Standard”, having “failed to demonstrate that it has an appropriate, robust and prudent risk and control framework in place which requires that there is access to sufficient liquidity at all times”.

Auxesia’s regulatory failure comes as the UK becomes ever more reliant upon the new breed of for-profit providers such as L&G Affordable Homes and Blackstone’s Sage – which was the single biggest builder of affordable homes last year – to deliver new affordable housing, with traditional housing associations hampered the need to invest in their existing stock.

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The RSH said the Knutsford-based firm, which is managed by a group of former services personnel and was created primarily to provide housing for former armed Forces, NHS and Emergency Services staff, had “failed to assess, manage, and address risks to ensure the long-term viability of the registered provider”.

In particular, the judgment said the business, which reported a pre-tax loss last year of £511k on turnover of just £3.6m, had ended up reliant on the sale of rental assets to another registered provider to cope with cash flow “pinch points”, and had “no contingency plans in place to identify alternative sources of funding should the asset sales be delayed or fail to materialise”.

The problem was only averted when one of Auxesia’s funders agreed an “emergency waiver”, highlighting “deficiencies with the effectiveness of the governance arrangements and the robustness of the information the board is receiving to inform its decisions.” The RSH said: “This lack of effective board oversight and management of its key risks is a fundamental failure of governance.” 

According to Auxesia’s most recent accounts, to September 2021, it owned just 88 properties at the end of the period, but had 464 in the pipeline and a plan to grow the business to 1,300 homes by 2026. It recorded a deficit in shareholders’ funds for the year of £338k, a fact it blamed then on an accounting technicality caused by the decision to remove as assets properties previously held as sale and leaseback, as it was determined after discussion with the auditor the long-term financial benefits of these properties no longer resided with Auxesia.

However, the RSH said it began its investigation in Auxesia following a review of these financial statements which it said “disclosed an insolvent balance sheet and significant capital commitments.”

The RSH said Auxesia had now acknowledged its concerns and had appointed a full-time finance director, engaged external consultants, and drawn up a plan of proposed improvements. The RSH will monitor implementation of the plan. An RSH spokesperson later confirmed that Auxesia is the first ever ‘for-profit’ registered provider to fail a regulatory test.

Harold Brown, the RSH’s senior assistant director for investigations and enforcement, said: “Our investigation found significant weaknesses in Auxesia’s governance which it needs to address. This includes failing to manage its key risks appropriately, and not having effective financial monitoring processes in place.

“We will continue to monitor Auxesia as it works to resolve its failings and return to compliance with our standards.”

Auxesia has been contacted for comment.

Note: This story was updated on 08.12 after the RSH confirmed Auxesia was the first for profit registered provider to have failed the regulatory standard.