EBITDA-MRI - what is it? [Housing Governance series #1]

I am a new board member in housing. 

I am a trainee board member for Taff Housing, a housing association in Cardiff, Wales. And I have a day job in governance at Valleys to Coast, a housing association in Bridgend, also in Wales. I have a background of working in the charity sector, as an employee and also as a board member, previously a trustee for the British Youth Council, currently as a board member for Wales Council of Voluntary Action. 

I mention my experience in the charity sector because the worlds of housing and charity are similar, but very different. Both believe in social good, both believe in helping others, but they have quite different looking balance sheets. There are a few terms or constructs in housing that have taken me a while to get my head around. And I want to make sure housing is as accessible as it can be to others, and I am a BIG believer in getting more young people into board positions, in the charity sector and in the housing sector (check out the young trustees movement, they’re seriously brilliant). 

So I guess this is a housing terminology explainer blog, with a finance bent. There’s examples, there’s step-by-step calculations.

Big thanks to Caroline Lawley for the review!

Enjoy! 

One of the more common, and more confusing phrases you will hear in a housing board situation is "EBITDA-MRI". I guarantee it will come up at least once in any board meeting you are partaking in and understanding it requires a bit of financial knowledge, but in understanding it you are strengthening your arsenal, more conversations will make sense, and you’ll feel more at home in a space that should be accessible to you.

EBITDA-MRI - what is it?

EBITDA-MRI stands for ‘Earnings Before Interest, Tax, Depreciation, and Amortisation, Major Repairs Included’. 

It is the go-to measure of financial health for a housing association, used by our Regulator to indicate positive financial performance.  This is partly because it is more informative to compare Aelwyd Housing Association’s EBITDA-MRI calculation against Pobl’s as opposed to turnover for example, as it removes variables, it keeps the picture clear. A smaller organisation would spend less on major repairs, and would therefore be spending less on interest and tax, and would have lower totals of depreciation and amortisation. Vice versa is also true, this measure makes it easier to compare apples with apples, and housing associations with housing associations. 

At the end of the calculation, you get a percentage. The median in UK housing associations is 128% (higher is good, the higher the percentage, the more financially secure an organisation is. It shows that the organisation has the ability to cover on-going finance costs from its day-to-day operating ability). 

So let’s go through EBITDA-MRI, and run through each word:

E - Earnings - how much an association has made in a financial year.

B - Before - this just means that we’re going to divide the thing before this, with the thing after it.

I - Interest - we’re going to start the ‘finance’y terms simply. When you borrow money, you usually pay interest to the lender to do so. The lender is taking on risk by lending you that money, and the interest is the ‘bit on top’ to reward them for that. You get interest when you have money in the bank because the bank uses your money to invest and lend to others, and you can profit from that. Housing associations manage large sums of money, it follows that they manage large amounts of interest. 

T - Tax - and we’re staying simple, money usually taken out of earnings, paid to the government, to support public services. Housing associations pay a lot of tax, because they generally manage large sums of money in grants and rents and loans.  

D - Depreciation - this is where we’re walking into more accounting-heavy language. Businesses work in ‘balance sheets’. 

A balance sheet is a list of assets - what a company owns, liabilities - what it owes, and shareholder equity - the sum of the difference between liabilities and assets. The total is the shareholder equity. 

On company balance sheets, every ‘tangible’ (physical) object has a depreciation value. Depreciation is the accounting world’s way of spreading the cost of big chunks of money over the life of a tangible object, so that it doesn’t scare investors and shareholders in one financial year. This does follow that the object must last for more than 12 months (otherwise there’s no following year spread). They can spend lots of money on a new housing development, and they predict that that new development will last for a certain number of years, and so they can divide the money they’ve committed by the years the development will last and get a less scary sum of money on the balance sheet each year for those years. And because it’s a tangible object (a big housing development) it still retains some value at the end of that time. They might last longer than that, they can be repaired, they could be sold on. Things that depreciate have resale value.

So let’s give an example of balance sheets and depreciation in action, my kitchen. 

My kitchen Assets are my knives, my pots and pans etc. That might come to £300 total.

My kitchen Liabilities would be if I got my best frying pan on finance, and I still owed £80 to Nisbets Catering Store for it. 

Assets minus Liabilities gives my kitchen balance sheet an Equity of £220. Simple!

Now say I want to record this kitchen balance sheet more accurately, and I say my nice new rice cooker is worth £90. I guess that the rice cooker will last me 10 years. Every time I do my end of year kitchen balance sheet, I would need to reduce my assets by £9 (asset/lifespan), and do the same for my pots and pans as well. 

And if I really want to, I can flog my rice cooker and maybe get a bit of my money back, as a profit or loss when I sell it.

That’s depreciation, a map of how physical objects can be accounted for on a balance sheet. And just to be clear, there are different models of depreciation that you can read about if you want to, that don’t follow my £9 a year for my rice cooker model! Now for another ‘finance’y word in EBITDA-MRI, Amortisation.

A - Amortisation - This is very similar to Depreciation, but it’s for ‘intangible’ (non-physical) things. 

Let’s go back to my kitchen example. Say I buy a cooking application, a subscription to a food app that gives me recipes. It’s £60 for a special three year deal, and I can spread that at £20 a year onto my kitchen balance sheet. However, that app isn’t mine, I’ve just bought access to it, And at the end of three years, I’m going to lose access to it. There’s no resale value there, my access just ends. So in housing that could be that all of the computers which the staff use run Microsoft, and that licence costs £300 a year per staff member.  So that’s Amortisation - an intangible thing, mapped over the course of its life onto the balance sheet, which has no value at the end of its life. 

Finally - MRI - Major Repairs Included - we can kiss goodbye to the accounting terms, this one is more simple. We are adding the agreed spend on Major Repairs to this measure. Whatever housing association X is spending on upgrading their properties in that financial year is added to the total we’re going to be dividing against earnings. As I noted before, this makes comparison easier between small housing associations and bigger ones. (Footnote - there is talk about removing MRI from this equation, you could see MRI as investment in property, and being spent on things like decarbonisation for example, so it is good to be spending it, and including it in a figure which housing associations want to keep lower to positively affect their EBITDA-MRI percentage can be seen as counter-intuitive to the decarbonisation and development agenda - we need better houses) 

OK, so that’s all the terms. Let’s put it into practice with a made-up housing association and see where we get to.

Operating Surplus for the year

£2,500,000 (this is the figure before interest and tax)

Add back

Depreciation

£200,000

Amortised Grant

£125,000

Deduct

Major Repairs Cost

£2,000,000

Sum of Above

£825,000

Divide by

Interest Payable

£400,000

EBITDA-MRI

2.0625

That would give us a percentage (x100, or move the decimal place 2 to the right) of 206%. That would put this made up housing association in a very strong position, compared to median sector averages as displayed by UK Government statistics:

EBITDA MRI Interest Cover %:

Lower quartile - 89

Median - 128

Upper quartile - 169

• Regulator for social housing, 2024

A sustained EBITDA-MRI of less than 100% means that the organisation is not doing well financially, may be on the radar of the regulator, and may be in breach of its covenants with lenders (side note - I’ll tackle covenants in a future piece). 

So that’s an EBITDA-MRI explainer, with examples and with some context for why it’s important, hopefully this blog has helped your understanding of a really common measure for the sustainability of housing associations. There’s some further reading if you fancy it, here:

• National Housing Federation, Lending, loan covenants and EBITDA-MRI calculations - housing finance and decarbonisation costs, 2022
• Savills, What can housing associations do to ease financial pressure?, 2021
• KPMG, Time to update the way you operate your business if you want better tenant outcomes, 2024