Leeds Community Homes - OFFER CLOSED

Financial performance

LCH is looking to raise a maximum of £360,000 through this share offer to finance their first project, the purchase of 16 permanently affordable 1 and 2 bedroom flats on a city-centre development by Leeds-based developer Citu.

Project costs

Leeds Community Homes' have budgeted for the following costs associated with the project:

  • The fee they will pay to GIPSIL to manage the flats, which equates to approximately £11,500 per year;
  • Overheads of approximately £18,000. These overheads include Leeds Community Homes staff time, premises, administration, accountancy and other business costs;
  • Mortgage interest is approximately £7,500 per year. Corporation Tax typically accounts for around £1000;
  • From 2020 LCH will pay 2% interest on shares, which will accrue to shareholders’ accounts. This leaves around £7,500 retained profit each year, from 2020;
  • They will also incur central Leeds Community Homes overhead costs.  LCH will employ an Executive Director for 2 days per week – one day to work on Low Fold, and one day to work on developing a pipeline of future projects, and to undertake tasks relating to the running of the Society;
  • Leeds Community Homes will also engage a professional project manager, until the completion of all the flats, to ensure that the flats on Low Fold are built to their requirements;
  • They also allowed for a contingency of 2% of the total project cost – in recognition of the fact that projects to develop homes can sometimes incur unexpected costs/suffer from delays;
  • LCH also have finance costs, including an initial set up fee for the lending facility.

Project income

Leeds Community Homes' business model is based primarily around rental income from the nine flats that they will retain on the Low Fold development. The flats will be rented at an affordable, social rent, a rent that is agreed as part of the Section 106 agreement.

Once all of the nine flats that they will retain are occupied, their annual rental income will total approximately £40,000. 

LCH have also budgeted for a small amount of grant income - £10,000 - for each of the five years from 2017. Given their success in attracting a larger amount of grant income in 2016, (approximately £50,000) they are confident that they will continue to be able to attract a smaller amount of grant in the five years that follow.

Leeds Community Homes expect to make a small yearly operating profit from 2019.

Annual return

It is in 2020 that LCH expect to begin to pay 2% interest on shares.

Profit and loss projection

The following information is a summary of the financial projections for Leeds Community Homes' project.

2016 Budget 2017 Budget 2018 Budget 2019 Budget 2020 Budget 2021 Budget
Income - - - - - -
Total Sales £36,107 £10,000 £254,994 £447,555 £57,632 £58,286
Total Cost of Sales - - £231,011 £409,961 £20,010 £17,921
Gross Profit £36,107 £10,000 £23,983 £37,595 £37,622 £40,365
Total Overheads £35,266 £32,562 £36,743 £24,940 £17,479 £17,825
EBITDA 841 (£22,562) (£12,760) £12,654 £20,143 £22,540
Total Depreciation and Amortisation - - - - - -
EBIT £841 £22,562 £12,760 £12,654 £20,143 £22,540
Finance Expense - - £5,794 £10,837 £7,749 £7,576
Shareholder Interest - - - - £4,000 £4,030
Taxation £168 (£4,356) (£3,422) £327 £798 £1,231
Retained Profit £673 (£18,206) (£15,132) £1,490 £7,596 £9,704

Notes

  • Please note that these are financial projections and actual results may differ.
  • The financial projections outlined above and the assumptions on which they are based relate to the future and may therefore be affected by unforeseen events.

Cash Flow

2016 Budget 2017 Budget 2018 Budget 2019 Budget 2020 Budget 2021 Budget
EBITDA £841 (£22,562) (£12,760) £12,654 £20,143 £22,540
Net Cash Generated from Operating Activities £841 (£50,658) (£33,111) £47,497 £13,226 £13,573
Net Cash Flow From Investing Activities - (£22,812) (£159,113) (£93,457) - -
Net Cash Flow from Financing Activities - £200,000 £100,000 £56,512 (£5,882) (£6,055)
Net Increase/(Decrease) in Cash and Cash Equivalents £841 £126,530 (£92,224) £10,552 £7,344 £7,517
Opening Cash Balance - £841 £127,371 £35,147 £45,699 £53,043
Closing Cash Balance £841 £127,371 £35,147 £45,699 £53,043 £60,560

Loan facilities

If LCH raise above their minimum target (ie the finance that they require to progress with Low Fold) they will be able to reduce the amount of long-term borrowing that they require. If they reach their maximum target, they will be able to deliver the Low Fold project without the need for long-term loan finance. A short-term bridging loan will still be required to fund the purchase of the seven flats that they will subsequently sell on.

Leeds Community Homes are in advanced negotiations with Ecology Building Society to provide bridging loans to cover the purchase of the intermediate flats, and to provide a 25-year loan to fund the purchase of the flats that they will retain for affordable rental.  They expect an initial interest rate of around 4% - but have budgeted for 5% in their financial projections. They have also stress-tested their plan at interest rates of up to 8%. Due to the relatively low loan to value ratio, they are confident they would be able to withstand such rises in interest rates.

Community shares unit - Booster programme

Leeds Community Homes have secured the support of the Booster Programme, which is funded by Power to Change and run by the Community Shares Unit. Under this programme up to £100,000 is available to match applications for shares from the public. This means that for every pound invested by individuals, up to £100,000, another pound will be invested in match shares.

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