Kāinga Ora takes next step in financial reset

“These reviews were essential to ensuring we only progress new housing projects that make commercial sense and that we sell land which is surplus to our requirements so we can get on a more financially sustainable footing,’’ says Chief Executive Matt Crockett.

“The decisions made because of these reviews allow us to move forward with confidence into the next phase of our reset, but they do require us to make one-off accounting write downs of between $190 to $220 million. The exact figure won’t be known until our end of year financial accounts are audited,’’ Mr Crockett says.

Included in the write downs are an estimated:

• $150 -$180 million of capital that was spent on housing projects that will not go ahead as originally planned because they no longer represent value for money, or they are not in the areas where the agency needs to deliver new homes.
• $40 million for land that has fallen in value since Kāinga Ora purchased it. Further details cannot be provided at this stage as the intention is to sell the land. Kāinga Ora needs to protect its commercial position, to get the best possible price for it.

Mr Crockett says savings made through operating efficiencies, taking a more disciplined approach to spending, and internal changes which have reduced overhead costs means Kāinga Ora can largely absorb the unbudgeted write-downs within its existing budget.

“Like other prudent developers we always make provision for some write downs, but the reset reviews have highlighted an abnormally high number of projects and land holdings that no longer make sense for Kāinga Ora if we want to get ourselves in a better financial position. We need to bite the bullet on this. There is often some short-term pain that comes with the resetting of past decisions, but making these write downs now is the right, financially responsible thing to do,’’ he says.

“It will not impact our future results. Kāinga Ora’s strong underlying operational performance and cost controls give us a high level of confidence that we will achieve or exceed the financial targets outlined in our Reset Plan.

“The write-downs also need to be seen in the context of Kāinga Ora’s growing asset base, which has risen in value by $28 billion over the past 10 years to about $49 billion.’’

Delivery pipeline review

Mr Crockett says the agency has assessed more than 460 social housing projects across the country to make sure it is getting best value for money and delivering houses in the areas of greatest need. Doing this has enabled it to take a more considered, strategic view of its project pipeline so it can deliver future social housing projects more cost-effectively.

“Some 254 projects are going ahead, while 212 that no longer stack up financially or are not in the right locations will not go proceed at this stage. The write downs represent the costs that were sunk into the initial scoping and planning phases of social housing projects which are either not proceeding or have been re-thought,’’ he says.

Review of land holdings

At the same time, Kāinga Ora has reviewed its vacant land holdings to determine what land makes sense to hold onto for the commercially responsible development of social housing and what land is best to be released for others to develop.

“Our current intention is to sell about one-fifth (roughly 36 hectares) of the vacant land we own because we no longer need it for either social housing projects or for urban development work.  Selling this land opens opportunities for others to increase the country’s housing supply.

“We will hold onto the rest of the land we own for now for possible future development,” Mr Crockett says.

Proceeds from any land sales will either be reinvested in new housing or used to help reduce debt.   

More information:

• Projects information sheet [PDF, 249 KB]
• Land sales information sheet [PDF, 265 KB]
• Pipeline assessment [XLSX, 35 KB]