[PPT] - Metropolitan Housing Association Bond Investor Roadshow December PowerPoint Presentation

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December 2016

Metropolitan Housing Association

Bond Investor Roadshow

Brian Johnson – Chief Executive Officer Ian Johnson – Executive Director of Finance Donald McKenzie – Head of Corporate Finance & Deputy Company Secretary

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1 . W ho w e are 2 . Governance 3 . Developm ent program m e 4 . Governm ent policy changes 5 . Financial perform ance and treasury strategy 6 . Appendices

Metropolitan Board
Governance Structure
Housing Stock and Tenant Profile
Housing dem and and Social Rent Levels
Risk Managem ent
Approach to Policy Changes

Wavertree Court, Streatham, London

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Metropolitan at a glance

One of the leading social housing associations and care

providers in the UK. Member of the G15

Owns and/ or manages c 38,000 properties
Geographically focused in London with some diversification

across the East Midlands and the East of England

Turnover of c. £235m and very strong reported operating

margin of c. 38% (adjusted for amendments to the pension scheme in FY 16)

Financially stable and robust with over 80% turnover from

social housing lettings (c. 90% group operating surplus)

Clear and streamlined group and governance structure
Refreshed and experienced Executive team with strong

group Board oversight

Ambitious but flexible development plan with a strong

emphasis on financial planning and approval processes

A+ S&P / ‘G1’ / ‘V2’ ratings
Strong risk management culture across the organisation

82% 11% 7% Social housing lettings Other social housing activities Non-social housing activities 70% 18% 12% 1% General needs Supported housing Low-cost home

wnership

Other housing

Social housing lettings – Revenue grow th Turnover – Breakdow n by FY1 6 Social housing lettings – Breakdow n by type FY1 6

150 160 170 180 190 200 2011 2012 2013 2014 2015 2016 £m

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Key financial highlights

Q2 results
Turnover broadly flat year-on-year
Operating margin consistent with FY 16
Operating surplus increased by c. 10% from FY16 with Operating Costs held at previous year levels
Continued focus on cost efficiency and Value for Money
> £97m invested in new development projects
293 new homes delivered YTD
Strong demand for sales products at or above anticipated prices
Liquidity remains strong
Despite uncertainties around the impact of Brexit and changes to the Regulatory environment the full year forecast

remains in line with management expectations Strong operating perform ance in FY 1 7

Reduction from AA- following the Brexit vote and S&P downgrade of the UK Sovereign rating
Rating renewed in July 2016 – A+ Stable outlook
October 2016 - S&P instituted a sector review particularly focusing on exposure to sales
Metropolitan rating outlook changed from Stable to Negative
Ratings of peer group RPs either reduced further or with a less optimistic outlook

Standard & Poor’s ( S&P) Metropolitan Rating

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Key strategic highlights

Healthy revenue growth of c.2% , primarily driven by growth in social housing activities (including General Needs housing)
Significant increase in operating surplus to c. £90m (vs. £85m in FY 15), driven by a combination of positive growth and

further cost control (excluding amendments to pension contribution scheme)

Surplus on ordinary activities reaching £68m (vs. £60m in FY 15)

Strong operating perform ance in FY 1 6

Strategy evolved to ensure Metropolitan is well positioned to address new housing policy developments
Entering a more long-term approach towards strategic planning
‘Metw orks’ initiative ( I n-House Contractor) : key milestone aiming at further improving cost efficiencies and the

quality of service provided

Ongoing implementation of new housing m anagem ent system ‘SI D’: providing greater data management functionality

and integration between different businesses

Continued focus on I ndependence, core strategic objective embedded within Metropolitan’s mission
Remain committed to developing 1,000 units pa
Merger of CPH with MHT will provide the opportunity to further accelerate the delivery of the Clapham Park scheme

Significant progress in strategy im plem entation Solid financial position

Continued commitment to our financial policy. ‘Frozen GAAP’ gearing of 62% (group accounting gearing is c.44% ) and

interest cover of c. 2.7x (against target of < 70% and > 1.1x, respectively)

Strong liquidity and extended life of debt maturity
Increased diversity in source of funding with issuance of corporate bond in FY 16

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Metropolitan’s strategic objectives

Our m ission: “To be the leading provider of packages offering homes that are affordable along with access to services that enable customers to maximise their Independence” Key objectives ( three-year horizon) :

1. Deliver a large number of homes at a level that is consistent with maintaining delivery through downturns in the housing market - in excess of 1,000 per year 2. Remain top quartile in terms of operating cost per property, enabling future funding and supporting the development programme 3. Deliver a large numbers of Independence outcomes - in excess of 10,000 per year 4. Develop the ability to acquire other companies that would enhance our level of services without compromising our financial policy 5. Increase contribution from the Care and Support business 6. Deliver consistently and continuously high standards of operations and services 7. Build a strong external reputation as a thoughtful, analytical and innovative housing association and become one of the top influencers of the housing and care sector

Key m easures:

Financial strength: operating m argin Developm ent: num ber of new affordable hom es delivered I ndependence: num ber I ndependence steps taken by custom ers

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Extensive geographical coverage

7 Colour key (number of units) 3,000+ 1,000-3,000 500-1,000 0-100 200-500 100-200

Enfield Barnet

Harrow

Hillingdon Brent Ealing Hounslow Kingston

Upon Thames

Merton Sutton Croydon Bromley Lewisham Greenwich Bexley Lambeth Southwark Havering Barking & Dagenham Redbridge Waltham Forest Camden Hackney Haringey Newham Tower Hamlets City of London Wandsworth Islington

Units ow ned and/ or m anaged in England – 3 7 ,8 3 1 in total of w hich 2 2 ,6 8 4 are in London

As at March 2016

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2.6% 2.3% 3.1% 2.2% 727 1,045 1,037 390

200 400 600 800 1000 1200 0.0% 1.3% 2.5% 3.8% 5.0% FY 13 FY 14 FY 15 FY 16 Absolute # of voids at y/ e % gross rental income

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Robust operational performance as demonstrated by low levels of voids, arrears and bad debts

Evolution of voids Key highlights Evolution of bad debts Evolution of rent arrears

1.5% 1.6% 2.2% Excluding Care and Support and Supported housing units

0.9% 1.0% 0.4% 0.2%

0.0% 0.5% 1.0% 1.5% FY 13 FY 14 FY 15 FY 16 % net rental income

6.6% 6.2% 5.2% 4.7%

0.0% 2.0% 4.0% 6.0% 8.0% FY 13 FY 14 FY 15 FY 16 % net rental income

Further improvements in managing voids: decreasing to 2.2%
Decrease of arrears for the fourth consecutive year to a record

low of 4.7%

Bad debts decreasing and expected to remain at very low levels
n a sustainable basis, despite a challenging environment
Clear focus on collection rate and obtain top quartile

performance (key target of the organisation)

Average re-let time of 73 days in FY 16 (vs. 100 in FY 15). In

Q4, re-let time reduced to 54 days and trending downwards

Expect further improvements in void and re-let times as

‘Metworks’ takes control of repairs within the group

1.4% Note: FY15 figures not restated for FRS 102

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1 . W ho w e are 2 . Governance 3 . Developm ent program m e 4 . Governm ent policy changes 5 . Financial perform ance and treasury strategy 6 . Appendices

Clarence Avenue, Clapham, London

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Streamlined group structure

Metropolitan – Legal structure

Metropolitan Housing Trust Ltd ( Metropolitan)

Community Benefit Society Registered with the HCA Metropolitan Funding Plc

Funding SPV

EM Property Services Ltd T/ a Metworks Company limited by shares Metropolitan Living Ltd Development and sale activities Company limited by shares SpiritaGen Ltd Dormant Company Company limited by shares Metropolitan Hom e Ow nership Ltd Dormant company Longsdale Ltd Management company Clapham Park Hom es Ltd Estate transfer of the Clapham Park Estate Registered charity Registered with HCA Community Benefit Society limited by guarantee W estleigh Cherry Bank LLP

50% partnership with Westleigh Monks Road development

Barratt Metropolitan LLP

25% partnership with Barratt West Hendon estate development

Clapham Park Developm ent Ltd Dormant Company Company limited by shares W est Hendon Service Charge Endow m ent CI C

Company limited by guarantee

Key highlights

Parent is Metropolitan Housing Trust Ltd (MHT) – main provider
f social housing within the group, including the Care and

Support business

Clapham Park Hom es Ltd ( CPH) to m erge into

Metropolitan Housing Trust Ltd ( MHT) via a Transfer of Engagem ents. To improve operational performance. Clapham Park Development Ltd (CPD) dormant − Obtained consent of key stakeholders (MHT/ CPH lenders, pension providers and LB Lambeth) − Process ongoing – completion expected end of January 2017

Clear separation and ring-fencing of social housing activities

regulated by the HCA from the rest of the group

Governance rating strapline confirmed ‘G1’ and ‘V2’ by the HCA

– January 2016

In the future the Group will comprise one main subsidiary:

Metropolitan Living Ltd (MLL) specialising in the development and sale of units on the open market − Parent to the West Hendon development scheme delivered through a JV with Barratt Plc (25% ownership, 50% control)

Other group subsidiaries include specialist and dormant entities:

− Metropolitan Funding Plc used as the bond issuance SPV − EM Property Services Ltd trading as ‘Metworks’ provides the In-House Contractor (IHC) services

Social housing activities (registered provider with charitable status) Development and sale activities (open market) Joint ventures Metropolitan Funding Plc (Bond issuance SPV) Specialist and dormant entities

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A strong and experienced leadership team

Mem ber Experiences Brian Johnson Chief Executive Officer: Appointed in October 2012

Since joining the group, Brian led the group through a period of financial and operational transformation. This included further strengthening

governance standards, drawing a new executive team and driving forward the financial turnaround. Brian was formerly Chief Executive Officer for Moat housing association for four years, Chief Executive of CityWest Homes, which manages 22,000 homes for Westminster City and Executive Director of Operations for Remploy, which provides employment opportunity for people with disabilities

Non Executive Director of North Essex Partnership Foundation NHS Trust

I an Johnson Executive Director of Finance: Appointed in July 2016

Ian has spent most of his professional career in the Development and Contracting sectors and has more than 10 years’ experience working at board
level. His experience includes raising capital on three occasions, performing two re-banking exercises and conducting a business turnaround. He has

also led a number of change projects, including merging two $2bn US homebuilding businesses and a finance transformation project for National Grid Richard Vining Executive Director of Development: Joined Metropolitan in December 2013

He has held a number of senior roles including Chief Executive Officer at Shepherd Construction Limited and Lorne Stewart plc, before which he was a

Director of Lend Lease Plc Jenny Danson Executive Director of Housing Services: Joined Metropolitan in June 2012

Prior to joining Metropolitan, Jenny had senior interim roles at Lovell, Connaught and Boots Opticians as well as Northgate Public Services. Jenny had

previously held senior operational and strategic management positions with BAA plc at Heathrow and Gatwick airports Ann Gibbons Executive Director of Care and Support: Joined Metropolitan in March 2013 to lead the Care and Support business

Ann was previously Regional Operations Director at Anchor where she led the northwest region of the business through a period of transformation.

She has also held area and regional management roles in financial services, including at Santander, Yorkshire Bank and Derbyshire Building Society Anthony Perkins Executive Director of People: Joined Metropolitan in July 2016

Responsible for all aspects of Metropolitan’s people agenda, including leading key people programmes and championing our culture and values.

Previously Group HR Director for Finlays supporting major strategic programmes including acquisitions, integrations, disposals, restructures and

rganisational culture and values development. Prior to this senior roles with ProQuest, a founder and equity holder in a management buyout from
Fujitsu. His early career was with Scottish & Newcastle restaurants and Sainsbury’s.

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1 . W ho w e are 2 . Governance 3 . Developm ent program m e 4 . Governm ent policy changes 5 . Financial perform ance and treasury strategy 6 . Appendices

Aldgate Place, London (CGI )

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Development history

Units com pleted 2 0 1 6 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 London Outside London Started on site Rented 547 466 496 125 303 140 33 107 303 Shared Ownership 143 128 209 33 130 81 17 64 316 Market Rent Private Sale 43 50 125 44 23 150 (1) 142 8 40 Total 7 3 3 6 4 4 8 3 0 2 0 2 4 5 6 3 7 1 1 9 2 1 7 9 6 5 9

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Note: (1) Includes 100% JV Sales

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Development programme – Overview and Pipeline

Key highlights

Size and mix of programme is capacity modelled - reverse

engineered to ensure affordability even in a downturn

Plan frequently tested against various scenarios to ensure

that levels and mix do not compromise financial policy and covenants − Mitigation strategies identified in case of a downturn − Schemes with private sales only approved if feasible exit

r mitigation strategy is in place
Current targets expected to be met and fully aligned to the

group’s financial strength criteria

Pipeline underpinned by two long-term large regeneration

schemes: West Hendon (Barratt) and Clapham Park Homes

Ambitious but achievable development plan to deliver c.

4,700 units over the next five years (including JVs)

Strong albeit flexible pipeline with 2,463 committed units1
Planned spending of c. £1,400m over this period
Current pipeline focused on eleven local authorities in

London, but offering some diversification in the Midlands

Increased emphasis on the M1/ M11 corridor

Developm ent program m e – Pipeline overview

Breakdow n by usage Breakdow n by location Total: 4 ,7 2 0 Target m ix

Note: (1) Total unit completions over a five-year period 2017-2021, excluding all commercial units

31% 47% 22% Rented Shared ownership Private sale 40% 40% 20% Rented Shared ownership Private sale

Developm ent in new hom es

Note: (2) Committed units defined as units for which we are contracted. Controlled is defined as land already owned.

49% 51% London Outside London

200 400 600 800 1000 1200 1400 2017 2018 2019 2020 2021

Committed Controlled Prospective

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Development programme

Key highlights

Good relationships with all key stakeholders including the GLA and the HCA

− Engaged with GLA to deliver a contracted c. 616 units over the 2015-18 period (40% rented/ 60% shared ownership) − Formal engagement with the HCA via Continuous Market Engagement (CME)

Land owned to support development of further 2,000+ homes
Grant funded from release of existing RCGF/ DPF on balance sheet. No new cash grant assumed in the plan
Plan designed to reflect the specific needs of local authorities in terms of unit types (house vs. flat) and bedrooms
Regeneration of the Clapham Park estate: 35 hectare site

between Clapham and Streatham

Over £1bn development scheme, transformed from stalled

regeneration scheme to great opportunity

Programme includes refurbishment of existing properties,

demolition of unsustainable properties and the provision of new

homes. Refurbishment now largely completed
Outline planning secured and projected to deliver c. 3,800

homes (new build and refurbishment of existing units) − c. 1,900 social units (general needs and shared ownership) − c. 1,600 units for open market sale − c. 300 refurbished leasehold units

Completion expected in 2026
Delivered through the Barratt Metropolitan LLP joint venture
Scheme benefitting from the rising London property market
Expected to deliver c. 2,200 homes, of which c. 550 affordable

− 71 social units delivered in March 2015. An additional c. 100 to be delivered in next phase, starting 2016 − c. 280 private sales delivered − Includes c. 300 shared ownership units

Strong emphasis on developing a sustainable neighbourhood

− New commercial premises − Improved local transport with new road layout for estate − Provision of new schools and community centre − Service charges and ground rent subsidised for all existing tenants for ten years − Completion expected in 2028.

Clapham Park Hom es W est Hendon

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1 . W ho w e are 2 . Governance 3 . Developm ent program m e 4 . Governm ent policy changes 5 . Financial perform ance and treasury strategy 6 . Appendices

Apple Grove, Harrow, London

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Changes to the operating environment: a pro-active approach

Key highlights

Corporate long term strategy remains unchanged but the wider operating environment creating potential headwinds:

Chancellor’s Autumn Statement & Housing White Paper
Changes to the Regulatory Regime – Government seeking reversal of the ONS decision
In-Depth Assessments and a greater HCA emphasis on Value for Money (VfM)
Ability of RPs to influence housing policy with the appointment of a new Housing Minister
Impact of Brexit
Potential reduction in development aspirations. Initial ‘hold’ on new land acquisitions –

subsequently relaxed as land market stabilised

Standard and Poor’s review and outlook for the UK Housing sector
Roll out of Metworks to London and the South East
Increased focus on disposing of low margin care contracts particularly in East Anglia

Clear focus on managing challenges stemming from government policy changes

Detailed strategy with an action plan in place to ensure that the group is well prepared for the

potential impact of changes

Close and continuous monitoring from the Board and Executive Team
Frequent assessment of the plan against ongoing and future changes
Stress testing to ensure robustness of strategy and plan

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Chancellor’s Autumn 2016 Statement - Housing

Key highlights

Target ‘to deliver a housing m arket that w orks for everyone’

Housing White Paper due ‘shortly’
Government aim to increase supply and to halt the decline in affordability
100,000 new homes as a result of the Housing Infrastructure Fund unlocking land in areas of

highest demand

Changes to the Grant regulations to deliver affordable rented homes and the new ‘rent-to-
wn’ policy
Government investment of c £1.7bn by 2021 to speed up house building on public land
Target additional 40,000 affordable new homes
Additional £3.15bn funding for the GLA to deliver over 90,000 homes in the London area by

2020-21

Government providing £250m funding for a large scale regional pilot for Right to Buy for RP

tenants

Universal Credit taper rate to be cut from 65% to 63% from April 2017
Local Housing Allowance (LHA) cap delayed until April 2019 but will now apply to all tenants
n Universal Credit

BUT – Still aw aiting additional details on all these announcem ents

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1 . W ho w e are 2 . Governance 3 . Developm ent program m e 4 . Governm ent policy changes 5 . Financial perform ance and treasury strategy 6 . Appendices

Bullfinch House, West Hendon, London

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Historical – Consolidated Income statement

Year end 3 1 March ( £ ’0 0 0 ) FY 1 2 FY 1 3 FY 1 4 FY 1 5 FY 1 5 FRS Restated FY1 6 Turnover 2 4 4 ,0 2 9 2 7 3 ,0 0 4 2 5 6 ,1 9 2 2 4 0 ,3 1 0 2 3 0 ,0 6 5 2 3 4 ,8 9 7 % growth 9.6% 11.9% (6.2% ) (6.2% )

2.0%

Social housing lettings 171,074 172,129 177,359 184,767 185,838 193,237 % growth 5.6% 0.6% 3.0% 4.2%

4.0%

Other social housing activities 34,287 47,318 34,889 31,062 23,087 26,242 Non-social housing activities 38,668 53,557 43,944 24,481 21,140 15,417 Operating costs (178,718) (163,814) (145,188) (134,738) (135,612) (136,270) Cost of sales (28,658) (42,179) (28,911) (11,609) (9,808) (8,525) Operating surplus 3 6 ,6 5 3 6 7 ,0 1 1 8 2 ,0 9 3 9 3 ,9 6 3 8 4 ,6 4 5 9 0 ,1 0 2 % margin 15.0% 24.5% 32.0% 39.1% 36.8% 38.4% Surplus on ordinary activities before taxation 1 6 ,3 6 8 2 0 ,3 8 1 4 0 ,8 2 2 6 0 ,5 4 0 6 0 ,8 0 5 6 7 ,9 5 1 Total units (owned and managed) 38,049 37,894 38,321 38,415 38,415 37,831

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Historical – Consolidated balance sheet

Year end 3 1 March ( £ ’0 0 0 ) FY 1 2 FY 1 3 FY 1 4 FY 1 5 FY 1 5 FRS Restated FY 1 6 Total housing properties 1 ,0 9 8 ,7 3 6 1 ,1 1 1 ,9 1 9 1 ,1 3 1 ,6 9 7 1 ,2 0 9 ,6 5 0 2 ,7 0 5 ,1 6 4 2 ,7 2 9 ,2 2 1 Other fixed assets 203,858 116,842 78,325 114,967 226,853 258,725 Total current assets 195,279 235,909 241,319 170,101 194,212 250,107 Net current assets 84,841 106,689 104,992 24,655 90,347 98,046 Total assets less current liabilities 1 ,3 8 7 ,4 3 5 1 ,3 3 5 ,4 5 0 1 ,3 1 5 ,0 1 4 1 ,3 4 9 ,2 7 2 3 ,0 2 2 ,3 6 4 3 ,0 8 5 ,9 9 2 Long term liabilities 1,133,470 1,071,330 1,043,642 1,026,051 1,563,784 1,562,754 Capital and reserves 165,631 187,701 228,559 290,372 1,458,580 1,523,238 Total funds 1 ,3 8 7 ,4 3 5 1 ,3 3 5 ,4 5 0 1 ,3 1 5 ,0 1 4 1 ,3 4 9 ,2 7 2 3 ,0 2 2 ,3 6 4 3 ,0 8 5 ,9 9 2

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Clear and prudent financial policy

Key pillars of Metropolitan’s financial policy Financial strength

Clearly defined financial policy
Strict policy of m aintaining a

gearing below 7 0 % and interest cover from profit from letting activities greater 1 .0 x at all tim es

Rigorous and continuous monitoring of

financial policy metrics and covenants

Track record of meeting targets with

significant headroom

Close links between strategic planning,

development planning and financial policy

Exposure to private sales mitigated by

ability to adapt to changing market conditions and flexibility inherent in business model

Emphasis on stress testing

Liquidity / Maturity profile Risk m anagem ent

Significant liquidity available through

cash and equivalents as well as undrawn committed revolving credit facilities

Prudent policy of maintaining

significant cash balance at all times

Liquidity resources m ust be

sufficient to m eet com m itted funding requirem ents for at least the next tw o years

No significant refinancing needs
ver the next five years
Centralised funding and treasury

management

Strong group of relationship banks at

MHT and CPH

Large unencum bered asset base of

£ 1 .2 bn at m arket value tenanted ( c. 3 0 % of group1)

Risk management is integral part of

Metropolitan’s financial policy

Strict risk-based approach to interest

rate management

Clear policy in place for interest

and counterparty risk m anagem ent

Interest rate strategy: fixed rate debt

greater than 75% of total debt

Treasury Committee approved

short/ medium term increase to 100% due to significant cash position and repayment of variable rate debt

No speculative hedging allow ed
Investing and borrowing transactions

realised with approved banks to minimise counterparty risk (based on ratings level)

No exposure to currency risk

22 Note: (1) Based on extrapolation from valued stock

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Treasury policy

Liquidity

Ensure sufficient liquidity (cash and borrowing arrangements) necessary to achieve business objectives
Prudent approach of maintaining high level of liquidity at all time

I nterest rate

Minimise risk by ensuring that borrowings contain a mix of fixed and variable interest rated debt
Target for proportion of fixed debt: > 75%
No more than 10% of interest rate hedging to mature within any 12-month period

Counterparty risk

Pro-active monitoring of counterparty risk, based on credit ratings
Investment maximum period of 364 days
Temporary increased maximum deposit of £20m per organisation to manage bond proceeds

Refinancing risk

Maturity profile of loans and bonds managed to avoid any material tranche of debt maturing

concurrently

No more than 10% of debt to mature within any 12-month period

Fraud, error and corruption

Strictly controlled environment to minimise the risk of counterparty failure, speculation, fraud or error
Operating systems maintained and saved at frequent intervals

Market risk

Ensure minimal exposure to market risk on its investments and borrowings
Speculation in any form is strictly and expressly prohibited

Exchange rate risk

May borrow funds in currencies other than sterling but the exchange rate risks must be fully hedged

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Prudent and risk-averse treasury policy
Reviewed and approved by the Treasury Committee on an annual basis

Key highlights

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Debt maturity profile

Current debt profile ( as of March 1 6 )

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Repaym ent of debt ( £ m ) W ithin one year 2 - 5 years 6 - 1 0 years 1 1 - 2 0 years Beyond 2 0 years Total Loans 45.2 47.4 94.7 304.8 452.8 944.8 Finance lease 0.0 0.1 0.2 0.3 0.0 0.7 Bond

150.0

150.0 Total 4 5 .2 4 7 .5 9 4 .9 3 0 5 .1 6 0 2 .8 1 ,0 9 5 .4 % total 4 .1 % 4 .3 % 8 .7 % 2 7 .9 % 5 5 .0 % 1 0 0 .0 %

200 400 600 800 1,000 1,200 16A 18F 20F 22F 24F 26F 28F 30F 32F 34F 36F 38F 40F 42F 44F 46F 48F Financial debt (excl. bond) Bond

Note: Schedule in table based on current drawn borrowings, excluding undrawn portion of bond (£100m) Note: Schedule in graph including undrawn portion of bond (£100m)

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Fixed vs. variable ( facilities draw n)

Capital structure (as of March 2016)

Key highlights Debt location w ithin the group ( facilities draw n)

Total gross debt: £1,095m as of March 2016
Repayable within one year: £45.2, within five years: £92.7m
Weighted average maturity of c. 23 years
Weighted average interest rate: c. 5.0%
Well balanced funding portfolio: c. 75% of bank loans/ building

societies and c. 25% from capital markets

Undrawn committed facilities of c. £230m, fully secured and

available under 48h notice. Undrawn portion of corporate bond

f £100m
Proportion of hedged fixed rate debt increases to c. 96% of total

gross debt as a consequence of the bond issuance

Total: £ 1 ,0 9 5 .4 m Total: £ 1 ,0 9 5 .4 m

Breakdow n of debt by type ( facilities draw n)

Total: £ 1 ,0 9 5 .4 m 76% 14% 10% 0.1% Loans (drawn portion) Bond (£150m drawn) Private Placements Finance lease 96% 4% Fixed Variable 76% 14% 11% MHT Metropolitan Funding Plc CPH

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Conclusion: Key credit highlights

One of the largest housing groups in the UK
Geographic concentration in London, m em ber of G1 5
Strong focus on low - risk social housing activities
Very high dem and for social housing in areas of operations
High operating m argin of c. 3 9 %
Flexible developm ent plan w ith proven ability to adapt to m arket conditions
Conservative capital structure w ith strong leverage and coverage ratios
Experienced m anagem ent team w ith tight group Board oversight
Clear em phasis on operational and financial perform ance
Strong risk m anagem ent culture at all levels of the organisation

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1 . W ho w e are 2 . Governance 3 . Developm ent program m e 4 . Governm ent policy changes 5 . Financial perform ance and treasury strategy 6 . Appendices

Metropolitan Board
Governance Structure
Housing Stock and Tenant Profile
Housing dem and and Social Rent Levels
Risk Managem ent
Approach to Policy Changes

I nterior, Show Flat, Six Hills House, Stevenage, Hertfordshire

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Metropolitan Board

Mem ber Background Experience Paula Kahn Chair Private, public and not-for- profit sectors

Chair of the Board since May 2013
Paula Kahn has been Chair of the Metropolitan Board since May 2013. Formerly CEO of Longman Group, the international publisher of

business, professional and educational books and online learning, now Pearson Education, she has extensive UK and international experience as a CEO of mergers and acquisitions, new media development and leading cross cultural teams. The group successfully

perated in 22 countries in a wide range of political and educational environments demanding flexibility and entrepreneurship
She was for 10 years a Chair in the NHS, latterly of North Central London, a PCT Cluster serving a population of 1.360 million with 10

Hospital Groups. The Cluster was responsible for commissioning health care to the value of £2.5 billion in a rapidly changing political and clinical environment Brian Johnson Chief Executive Officer Social housing

Appointed Chief Executive Officer in October 2012
Since joining the group, Brian has led the group through a period of financial and operational transformation. This included further

strengthening of governance standards, building a new executive team and driving forward the financial turnaround. Brian was formerly Chief Executive Officer for Moat housing association for four years, Chief Executive of CityWest Homes, which manages 22,000 homes for Westminster City and Executive Director of Operations for Remploy, which provides employment opportunities for people with disabilities

Non Executive Director of North Essex Partnership Foundation NHS Trust

I an Johnson Executive Director of Finance Finance

Executive Director of Finance: Appointed in July 2016
I an has spent most of his professional career in the Development and Contracting sectors and has more than 10 years’ experience working

at board level. His experience includes raising capital on three occasions, performing two re-banking exercises and conducting a business

turnaround. He has also led a number of change projects, including merging two $2bn US homebuilding businesses and a finance

transformation project for National Grid Stuart Beevor Senior I ndependent Director Chartered Surveyor

Joined the Board in January 2013
Stuart is Chair of Development Committee. He is a Chartered Surveyor with 35 years’ experience, working in several major organisations

and covering technical property matters, capital investment, business leadership and client relationship. This is coupled with industry participation in various public and private entities. He is currently a trustee of the I nvestment Property Forum Educational Trust, a member

f two DTZ I nvestment Management committees, a member of the Greenwich Hospital Advisory Board, a non-executive director of I CG-

Longbow Senior Secured UK Property Debt I nvestments Ltd and Chairman of the I nvestment Advisory Board for the Diversified Property Fund for Charities Janet Dean Non- Executive Director Public sector

Joined the Board in October 2012
Janet is Chair of Clapham Park Homes Ltd. She has over 30 years’ experience of commissioning, contracting and transforming public sector

services, including roles as an executive director in London and Yorkshire. She is co-founder of the Dean Knight Partnership, which provides consultancy and interim management for a range of regeneration, housing, social care and leadership projects. Janet is currently non- executive Chair of Compass UK and a member of the Board and Chair of the Finance and Employment Committee of Sheffield Hallam

University. She was designated a Public Appointments Ambassador by the Government Equalities Office

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Metropolitan Board (cont’d)

Mem ber Background Experience Clive Deadm an Non- Executive Director Utility sector

Joined the Board in January 2013
Clive is Chair of Safeguarding and Quality Committee. Clive has over 20 years’ experience in the utility sector, during which he held

executive director roles in electricity (Norweb/ ENW) and water and waste utilities (North West Water/ United utilities). Prior to that, Clive spent eight years in the venture capital industry, during which he specialised in engineering and environmental protection projects. He is currently a council member of the I nstitute of Asset Management, Chairman of the I nvestment Forum of the UK’s Energy I nnovation Centre, a non-executive of Ombudsman Services and Director at his own consultancy company Mike Green Non- Executive Director Media

Joined the Board in September 2012 (previously a member of the Audit Committee)
Mike is Chair of Audit and Risk Committee. He has various non-executive roles including the Sports Council Trust and Southend University

Hospital NHS Foundation, where he is also Chair of the Audit Committee. Previously, Mike spent 20 years in broadcast television, his last role being Deputy Group FD at I TV. Prior to that, Mike worked twelve years for KPMG, where he progressed to the role of Senior Manager. Jerry Piper Non- Executive Director Transport

Joined the Board in January 2013
Jerry is Chair of the Remuneration Committee. He is a resident of Canalside Housing Partnership in Shoreditch, where he has lived for 24
years. Jerry is currently a senior manager at London Underground, having spent 32 years of his career in the passenger transport business

in London. His responsibilities include the management of a large workforce and the delivery of a high frequency train service Michael Dunn Non- Executive Director Finance

Joined the Board in January 2014
Michael is Chair of Treasury Committee. His previous roles include Group Finance Director of St Modwen Properties PLC and Group Finance

Director of May Gurney I ntegrated Services Plc. Mike is a qualified chartered accountant Lesley-Anne Alexander CBE Non- Executive Director Not for profit sector

Joined the Board inn October 2016
CEO of the Royal National I nstitute of Blind People (RNI B) 2004-2016. She has had a long career in the public and charity sectors including

the role of Director of Operations for the Peabody Trust.

Non-executive positions include Chair of Red Door Ventures Ltd, Director of the Royal Brompton and Harefield NHS Foundation Trust, a

Trustee of the MicroLoan Foundation and an ambassador for the Alzheimer’s Society. She is also a member of the Guild of Entrepreneurs. Natalie Burrow s Non- Executive Director E-commerce

Joined the Board in October 2016
Significant experience in e-commerce, digital strategy and customer-focused service design to Board. Previous experience as Tesco’s Digital

Product, User Experience & Strategy Director.

Prior to joining Tesco, a Senior Product Manager at Royal Mail Group, RBS, Aon and Accenture.

29

SLIDE 30

Key highlights

A strong governance structure in place

Metropolitan Board

Compliant with the National Housing Federation’s (NHFs) Code of

Governance: Excellence in Governance

Governance rating stapline confirmed ‘G1’ and ‘V2’ by the HCA –

confirmed in January 2016

Governance structure:

− Increased efficiency and transparency in decision making − Members nominated following an in-depth skills based selection process supplemented by periodic skills audits − Succession plan in place

MHT Board is responsible for group strategy and management

− Eleven members: nine non-executive and two executive members

Clear separation between strategic role of the Board and executive role
f the management team: nine out of eleven members are

independents

Chief Executive Officer and other Executive Officers provide the Board

with monthly performance reports and updates on specific operational targets on a quarterly basis

Systematic focus, review and identification of key strategic risks

potentially impacting the group and elaboration of mitigants

Formal and rigorous evaluation of the Board performance and its

individual members on an annual basis

Board meets ten times a year, including an away day for strategic

discussions

Role/ Mission of MHT Board

Set the overall vision, mission and strategic objectives of the group,

establishing a framework to achieve them

Appoint Board members, the Chief Executive and other Executive members of

the Board

Nominate each of the subsidiary Boards and make all appointments to Board

committees

Monitor performance against strategic objectives using agreed performance

measures (KPIs)

Review and approve budgets and business plan
Approve key policies and decisions to allow the group to achieve its objectives,

including decisions around the development programme

Determine roles and responsibilities of subsidiary Boards and the terms of

reference of the Board committees

Subsidiary Boards Board Com m ittees

Audit and Risk Developm ent Treasury Nom inations Rem uneration Custom er Service Safeguarding and Quality

30

Clapham Park Hom es Ltd Clapham Park Developm ent Ltd Metropolitan Funding Plc Metropolitan Living Ltd EM Property Services Ltd

SLIDE 31

Very high demand for social housing in areas of operations

Growth in London expected to be more than twice that
f the rest of England over next 20 years
East of England and East Midlands also expect

stronger growth than the non-London average

Number of households expected to increase by

c.14,000 a year between 2014 and 2034 in main areas

f operations
Very high level of demand for social housing in London

and key Metropolitan (top 10) areas of operations − Housing associations provide affordable rented homes to over 115,000 households − Over 57,000 households on waiting lists − Significant shortfall of new social housing compared to demand expected over the foreseeable future

Share of elderly people (70+ age) expected to

increase, supporting demand for social housing and care services

Stable level of homelessness in top 10 local authorities
ver the last two years with c 5,500 households in

priority need W aiting lists in core areas

Source: 2015 www.gov.uk statistics Households (‘000s) Sources: Data on homelessness sourced from Department for Communities and Local Government (2016) 75 150 225 300 375 450 London East Midlands East of England

Metro. (Top 10)

Waiting lists Total social housing stock Local authorities ( top 1 0 ) W aiting list ( 0 0 0 s) Lambeth (London) 17 Rushcliffe 1 Derby City 4 Haringey (London) 11 Nottingham City 4 Brent (London) 4 Sutton (London) 1 Enfield (London) 2 Hackney (London) 11 Cambridge 2 Total 5 7 31

SLIDE 32

32

Social and market rents in key areas of operations

Social and m arket rent in areas of operations Key highlights Distribution of Metropolitan’s annual rents Average social rent in key local authorities ( top 1 0 )

Average social rents of £121 a week for a 2 bed property in

London, approximately a third of the £346 median in the private

sector. In the East of England: £111 vs. £178 in the private

sector; East Midlands: £92 vs. £126 in the private sector

Average property price of c. £556k in London, £292k in East of

England and £ 186k in East Midlands vs. £313k for England

c. 50% of Metropolitan’s properties let on first offer
Tenant turnover: 7.4% for all residential rented stock and 6%

for housing only (vs. 9.3% average FY 14 and FY 15)

240 116 82 277 142 101 332 166 120 300 145 103 346 178 126 415 207 150 109 90 81 121 111 92 136 124 100

150 300 450 London East of England East Midlands London East of England East Midlands London East of England East Midlands 1 bed property 2 bed property 3 bed property Weekly rent (£)

Afforable rent (80% market) Market rent median Average social rent

10 20 30 1 2 3 4 5 6 7 8 9 10 11 12 13 (% of total rent) (£'000)

117 95 88 121 86 133 117 120 115 112 128 101 100 131 91 150 135 138 134 125

40 80 120 160 Lambeth Rushcliffe City of Derby Haringey Nottingham City Brent Sutton Enfield Hackney Cambridge Weekly rent (£)

2 bed property 3 bed property

SLIDE 33

60% 15% 10% 12% 2% 1% General needs Supported housing Shared ownership Leaseholder Market renting Other 33

High quality and well-maintained housing stock

Key highlights Metropolitan – Stock profile

Stock by age Stock by usage Stock by property type Stock by no. of bedroom s ( General Needs)

28% 40% 22% 4% 6% 1 bedroom 2 bedrooms 3 bedrooms 4 bedrooms Other

Recently developed and well maintained

housing stock, with an average age of properties of c. 40 years old

Housing stock reflecting population needs

− Majority of flats (57% ) and houses (32% ), driven by the London market − Majority of 2 bedrooms (40% ), most efficient from an operations standpoint

75% of stock used for general needs and

supported housing, 10% assigned to shared ownership

Negligible number of units at market rent

(2% )

All housing stock (excluding CPH)

compliant with the ‘Decent Home Standard’, a key priority of the group’s asset management strategy

In-house contractor to provide better

quality and more focused repairs service

Stock estimated value of c. £7.5bn at
pen market vacant possession (c. £4.5bn

at market value tenanted)

29% 29% 23% 7% 12% Post - 2000 1980 - 1999 1960-1979 1940-1959 Prior - 1940 57% 32% 4% 4% 3% 1% Flat House Room Bungalow Maisonette Bedsit

SLIDE 34

34

Closely monitored and well-balanced tenant profile

Age profile of tenants Key highlights Breakdow n of tenants ( benefits vs. no benefits) Breakdow n of tenants ( w orking age vs. pension age)

Increased emphasis on gathering and managing tenant data
Incentive to use efficient communication channels and improved

automated processes

Well-balanced age profile encouraging sustainable

neighborhoods

Favourable tenant profile limiting level of bad debts and arrears:

− Low exposure to tenants below 25 (c. 5% ), traditionally the segment with high arrears − c. 60% of tenants on benefits

Metropolitan retains the right to refuse tenants with a history of

ASB or failure to pay rent

5% 17% 20% 23% 15% 19% 1% Under 25 25-34 35-44 45-54 55-64 Over 64 Unknown 60% 40% Benefits No Benefits 80% 19% 1% Working age Pension age Unknown

SLIDE 35

Risk Management

Risk m anagem ent fram ew ork

Comprehensive and holistic approach towards risk

management

Progress on risk activity reported across the group at

all levels with appropriate level of details − Risk registers are maintained at each level of the

rganisation

− Risks are scored with unmitigated high risk items being passed upward through the risk framework for management at an appropriate level through the

rganisation
Clear mitigation and control measures in place for each

class of risks identified

Risks associated to a rapidly changing environment

(welfare reforms, exposure to housing and transformational change) are at the centre of management’s focus

Growth and development projects only undertaken if

these do not threaten the group’s financial viability (and financial policy)

Metropolitan Housing Trust Group Board

Executive team Finance Develop- m ent Housing HR Care and Support Business as usual Business as usual Business as usual Business as usual Business as usual Projects Projects Projects Projects Projects Board Executive Director / Head of service Business division 35

SLIDE 36

36

Government policy changes: impact and mitigants

Potential im pact

55% tenants (c. 12,250)

impacted by the change,

f which c.24% (c.

5,400) are on full housing benefits

Potential increase in

transaction charges (impact of c. £180k) and potentially additional interest cost (c £470k) from increasing of arrears (estimated at c.£9m) which would also result in additional bad debts (c. £190k)

Total estimated impact:

c.£840k Potential im pact

Housing benefit cap

could have a bigger impact on supported housing where costs are higher

Tenants could find it

difficult to afford the costs Potential im pact

Metropolitan is supportive
f this policy
I ncrease the rental

income from tenants with higher household incomes

c.2.5% of tenants

impacted by the change

Represents some upside

for the group Key m itigants

I nitiatives to raise

awareness among tenants, including promotion of budgeting

Business plan

assumptions conservative Key m itigants

I ntense lobbying from

housing associations as details of policy are still being discussed

Reducing exposure to

Supported Housing by exiting support services contracts – costs associated with services would be eliminated together with revenues

Conversion of supported

housing units into general needs units Key m itigants

I mplementation of the

‘Pay to Stay’ approach is an objective for Housing Services

Potential upside as the

plan does not assume rental increase in relation to the implementation of ‘Pay to Stay’ approach

Universal Credit Supported Housing Pay to Stay – W ithdraw n 2 1 / 1 1 / 1 6

Potential im pact

Benefit caps to be

reduced to £23k in London and £20k outside London

Could impact tenants with

annual rent of over £10k (assuming 50% of benefits spent for housing costs, ie. rents and service charge)

Very limited impact as it

concerns only c. 150 properties

Total estimated impact: c.

£70k Key m itigants

Future development plans

to be assessed against rent affordability criteria to future proof the business

Benefit Cap reductions

Potential im pact

Housing benefits reduced

via “bedroom tax” or non- dependents occupying rooms

Requires tenant to collect

rent from non- dependents or pay the rent themselves

Very limited impact via:

bad debts (impact of c. £25k pa), arrears (impact of c. £70k on cash flows)

Total estimated impact: c.

£25k Key m itigants

Arrears of impacted

household monitored separately

Pro-actively working with

agencies and tenants to ensure a plan is in place: assist households to move through mutual exchange

Positive impact on arrears

already observed

Cuts to Housing Benefit

Potential im pact

Proposed extension of

RTB announced in last year’s budget

Extension to the whole

stock (from 10% of general needs currently) increases exposure

Main adverse impact

relates to loss of rent until new units are built (as replacements)

New FRS rules implies a

decrease in profit on disposal from a RTB, but this is offset by the compensation Key m itigants

Tenant’s ability to finance

the purchase is a significant obstacle (limited take-up so far)

Base assumption

increases RTB to 100 units per annum, reflecting current number

f enquiries – this is a

reduction from 300 units pa vs. previous Sep 2015 plan)

Cash received from

increased RTB improves short term liquidity

Extension of Right to Buy

36

SLIDE 37

Disclaimer

I m portant notice For the purposes of the following disclaimer, references to “this presentation” shall mean these presentation slides (and any printed copies of them) and shall be deemed to include references to any related speeches made by or to be made by or on behalf of the management of Metropolitan Housing Trust Limited (MHT), Metropolitan Funding plc (the I ssuer) and their associated companies any questions and answers in relation thereto and any other related verbal or written communications. This presentation may only be communicated or caused to be communicated in the United Kingdom to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the Order) or high net worth entitles who fall within Articles 49(2)(a) to (d) of the Order (all such persons being referred to as relevant persons). Any investment or investment activity to which this presentation relates is available only to relevant persons and will be engaged only with relevant persons. Persons who are not relevant persons should not remain present for, or rely on, this presentation. This presentation is being directed at you solely in your capacity as a relevant person (as defined above) for your information and may not be reproduced, redistributed or passed on to any

ther person or published, in whole or in part, for any purpose, without the prior written consent of MHT.

The information in this document is confidential and subject to change without notice, its accuracy is not guaranteed, and it may be incomplete and is condensed. The information contained in this presentation is subject to updating, completion, revision or change, verification and amendment without notice. No representation or warranty, express or implied, is made by or on behalf of MHT or the I ssuer or any of their board members, directors, officers or employees or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this presentation and no responsibility or liability is accepted for any such information or opinions save that nothing in this paragraph shall exclude liability for any representation or warranty made fraudulently. This presentation does not constitute a prospectus or offering document in whole or in part and it is superseded by the final version of a prospectus or offering document relating to the proposed transaction. Recipients of this presentation who intend to apply for securities issued by the I ssuer are reminded that any application must be made solely on the basis of any information contained in the final version of the prospectus or offering document, which may be materially different from the information contained in this presentation. No reliance may be placed for any purpose whatsoever on the information or opinions contained in this presentation or on its completeness. This presentation may contain certain statements, statistics and projections that are or may be forward–looking. The accuracy and completeness of all such statements, is not warranted or

guaranteed. By their nature, forward looking statements involved risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Although

MHT and the I ssuer believe that the expectations reflected in such statements are reasonable, no assurance representation or warranty can be given that such expectations will prove to be

correct. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements.

Nothing in this presentation should be construed as a recommendation or advice to invest in any securities. You should make your own independent evaluation of the proposed transaction. This presentation does not constitute or form part of any offer or solicitation or invitation to any person to acquire any securities from the I ssuer and/ or MHT in any jurisdiction. 37