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Social housing Reit: our units save government a bundle

11 September 2019

Triple Point Social Housing counters regulatory pressure on its sector saying real estate investment trust (Reit) saves taxpayers up to £2,000 a week for each vulnerable person it shelters.

 

As an increasingly hostile regulator takes its toll on social housing trusts, Triple Point Social Housing (SOHO ) says it saves the government as much as £2,000 a week by housing just one vulnerable person.

The Regulator of Social Housing has made life tough for real estate investment trusts such as Triple Point and Civitas (CSH ) since it was spun out of the Homes and Communities Agency in 2018. It wasted no time in slapping housing associations and registered providers, which are the tenants of the trusts, with non-compliance notices primarily for governance failings and lack of financial viability.

Enforcements were accompanied by a hard-hitting report that questioned the business model of leased-based providers of specialist, support housing.

Triple Point shares have tumbled 13% this year to 85.6p, well below their 100p launch price two years ago and at a 16% discount below net asset value (NAV). Similarly, Civitas Social Housing has slumped nearly 20% to 85p and stands on a 21% discount.

The enforcements persisted from 2018 into 2019, and in SOHO’s interim results for the first six months of the year, it noted the impact the regulator has had on three of its tenants this year: Inclusion Housing, which it leases 75 assets to and comprises 21.1% of the trust’s rental income; Encircle Housing, which it leases two assets to; and Bespoke Supportive Tenancies, which rents five of its properties.

To counter the bad press, the £313 million Reit has used its interim results to reiterate the good private capital can have in the public sector.

Echoing comments by Civitas Social Housing earlier this year, SOHO chairman Chris Phillips said investors have a ‘powerful social impact’, helping vulnerable people with disabilities and mental health issues.

‘Each resident in our housing is saving the government about £200 a week compared to residential care and nearly £2,000 a week compared to in-patient care,’ he said.

‘Every one of the 2,306 units in our portfolio therefore contributes to society through improving the lives of residents while costing the government less.’

Phillips said the demand for social housing shows no sign of abating with a ‘chronic undersupply’ of housing and an annual shortfall of 29,053 in 2019/20, rising to 46,771 by 2024/25.

Phillips said it was working with the providers that have come under scrutiny to assess ‘what changes can be made to our investment model in order to address some of the issues highlighted by the regulator’.

The trust acquired 46 properties for £67.8 million in the first half, using money raised in a share issue last October. This took its total to 318 to which this month it added six supported housing properties for £7.2 million and in a separate deal spent £27.4 million on 36 properties across England.

Group assets were valued at £423.2 million, an uplift of £27.3 million from the start of the year. Rental income also rose from £17.4 million in June 2018 to £21.2 million in June this year, and operating profit rose from £6.1 million to £11 million over the same period.

The dividend of 2.54p paid over the first half puts the alternative income trust on track to pay a 5.095p dividend over the year, up 1.9% due to the inflation-linked rent increases on its leases. This puts the shares on an attractive yield of 5.8% although the dividend is only 60% covered by earnings due to the slow deployment of the money raised last year.

The manager noted that 100% of the properties are let or pre-let when forward funded, and 100% of income is inflation-linked. Despite the issue the regulator has with providers, the trust has not had any tenants fall behind on rent.

Fund manager Max Shenkman said the sector was ‘undergoing growing pains’ as a fast-growing sector and they need to be worked through ‘promptly and efficiently’.

‘It is important that registered providers have the infrastructure to provide cyclical and responsible housing services to the vulnerable residents in properties,’ he said.

‘It is important to remember that this sector has grown fast for good reason: the fundamentals are strong.’

Shenkman said he would like to see the risks associated with the sector reduce and ‘standards continue to rise’ but there is still the vast opportunity of a £400 million pipeline of properties.

He will target these in the second half of the year using a revolving credit facility put in place in 2018 and ‘substantially deploy a third debt facility which is in the process of being put in place’, while not ruling out the possibility of a further capital raise.

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