Social housing regulator downgrades Civitas and Triple Point tenant to lowest level

The Regulator of Social Housing has issued a damning judgement against My Space Housing Solutions in another blow to the Civitas and Triple Point real estate investment trusts that lease properties to the housing association.

The Regulator of Social Housing (RSH) has issued a damning judgement against My Space Housing Solutions in another blow to the Civitas (CSH ) and Triple Point (SOHO ) social housing real estate investment trusts (Reits) that lease properties to the housing association.

In a ruling before Christmas, RSH slashed My Space’s governance and viability gradings to their lowest level of G4/V4, down from the non-compliant grades of G3/V3 it issued two years ago.

The regulator said despite some early progress following its previous intervention in December 2020, the situation at the Bolton-based provider had ‘deteriorated considerably’ and RSH had begun enforcement action to improve affairs.

The Charity Commission has also launched a statutory inquiry to investigate My Space for potential conflicts of interest and possible mismanagement of funds. 

My Space operates more than 1,000 units in 70 local authorities, housing vulnerable individuals with ‘high acuity’ needs. It leases 34 properties from the Triple Point Reit, representing 7.5% of the fund’s contracted rent roll, and nine from Civitas, equivalent to 1.3% of its rent roll. 

SOHO, the Triple Point fund, said the value of the properties leased to My Space had fallen 14.6% to £42.8m in the nine months to 30 September 2022. This represented 6.4% of the portfolio.

In a statement on 19 December, RSH said it had in recent months ‘become increasingly concerned regarding the financial viability, liquidity and governance of My Space’, pointing to a breakdown in board oversight and international controls following the resignation of key staff and directors. 

The watchdog said it was also unhappy with changes to the board, which My Space had acknowledged lacked independence, and said in a comment that chimes with the accusations against homeless accommodation provider Home Reit (HOME ), that My Space had entered into a ‘wide range of property transactions… with a connected property developer that are not in its best interest’.

‘The current position is that My Space has not been able to provide assurance it is solvent and it appears to be entirely reliant on the continued financial support from third parties to be able to continue trading,’ RSH said. 

It is also concerned that not all of My Space’s housing stock meets the definition of ‘specialised supported housing’ and that the exemption from the ‘rent standard’ – which limits the maximum rents for social housing tenants – has therefore been misclaimed for many of its units.

In its half-year results to 30 June 2022, the Triple Point fund said My Space was one of two tenants in arrears and that it recognised an ‘associated expected credit loss’ in the period. 

In response to the regulatory downgrade, fund manager Triple Point Investment Management said it was working with My Space to improve operations and establish a repayment schedule for the arrears. 

The group said it would consider whether to make alternative arrangements for some or all of its properties with My Space. 

Civitas Social Housing said My Space had ‘demonstrated a track record of timely rental payments’ but more recently ‘rent arrears have occurred that are not material in the context of the Civitas portfolio but are being actively followed up with a view to obtaining payment’.

Numis Securities analyst Gavin Trodd said: ‘The regulator’s concerns have historically centred on issues surrounding the lease-based model, where housing association cash outflows are based on long-term, inflation-linked financing, whereas cash inflows from housing benefit receipt is more variable based on occupancy rates and the number of available units.’

He added: ‘Although both listed funds have tried to take steps in addressing the regulator’s concerns through amending leases and implementing new clauses, we believe this judgement points to the significant questions that still remain over the sustainability of rents,’ which were not as resilient as the government backing from housing benefit first implied.

Shares in both Reits have risen since the regulatory judgement but have fallen more than 30% in the past year to stand on wide 45% discounts to net asset value. Their 9% yields indicate investor scepticism about the strength of the dividends.

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