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University pension scheme extends 45-year credit to affordable housing trust

6 July 2020

Specialist real estate investment trusts continue to distinguish themselves from mainstream property rivals with a flurry of good news.

Specialist real estate investment trusts (Reits) continued to distinguish themselves from their generalist, mainstream rivals with a flurry of good news today.

Residential Secure Income (RESI ) agreed a £300m debt facility with a university pension scheme, Supermarket Income (SUPR ) snapped up six Waitrose stores and Target Healthcare and Urban Logistics issued positive updates.

RESI, the £154m social housing trust, has secured a £300m 45-year debt facility from the Universities Superannuation Scheme (USS), one of the largest university pension schemes in the UK, to fund a swathe of affordable shared ownership homes.

The trust will be able to draw low-cost funds to pay for acquisitions over the next three years, with the facility representing the first standalone investment grade financing secured purely for shared ownership homes. 

RESI will use £34m to pay for the acquisition of 73 homes in Clapham Park and another £36m expected to be deployed on a pipeline of opportunities in the near term to add to its portfolio of 166 shared ownership homes. 

Fund manager Ben Fry said shared ownership homes provide ‘significant social impact through delivering affordable homes near employment for key workers while providing an excellent, secure, inflation-linked investment’.

Investing in shared ownership is the ‘most effective solution to lack of affordability and permanent fit-for-purpose homes, a view which has been enhanced during the current pandemic’, said Fry.

RESI trades on a discount of 15.5% after the shares fell 5.9% year-to-date, ignoring the 2.8% rise in its net asset value (NAV). 

Supermarket sweep

Supermarket Income, which proved itself to be the darling of the Reits during the Covid-19 pandemic, has snapped up six Waitrose stores.

The £527m Reit, which is currently trading at a premium of 18% over NAV after supermarkets saw sales rocket during the coronavirus lockdown, has purchased a portfolio of stores through a ‘sales and leaseback’ agreement with Waitrose for £74.1m, equivalent to a yield of 4.4%.

The stores will be let back to Waitrose on a new 20-year lease with a tenant-only break option after 15 years, with rents reviewed every five years and linked to CPIH, the new measure of UK consumer price inflation (CPI) that includes housing costs.

Ben Green, director of fund manager Atrato Capital which runs the Reit, said ‘all the stores have an impressive trading record and are complementary to our existing portfolio, providing further tenant and geographic diversification’. 

Supermarket has been a property winner this year, with its shares increasing 4.4% year-to-date and its NAV climbing 3.1%. It currently pays a yield of 5.2%. 

Hitting its dividend Target

Target Healthcare (THRL ), the £493m care home investor, has reaffirmed its dividend after collecting 96% of rent owed this quarter. 

The Reit, which yields 6%, will pay its fourth quarter interim dividend of 1.67p for the three months to end of June, in line with its 6.68p full-year dividend target.

Dividends have suffered this year as Reits have struggled to collect rent from tenants, many of which haven seen revenues slide to zero during lockdown, but THRL has not suffered this issue, instead having to face the more direct concern of Covid-19 outbreaks in its care homes

As of 2 July, five of the its 71 care homes had confirmed or suspected Covid-19 cases, representing 15 of the 4,925 beds in the portfolio. 

Kenneth MacKenzie, chief executive of Target Fund Managers that run the Reit, said demand for the trust is driven by the ‘UK’s shortage of high-quality care homes’ and ‘uncertainty about future public sector funding’.

‘The UK’s elderly population, as well as future generations, deserve and will demand better,’ he said. 

MacKenzie has added to the portfolio in the second quarter, investing £14.5m in a 40-bedroom home in Merseyside let on a 35-year lease and a 64-bedroom home in Nottingham on a lease of the same length. 

It has also completed two new developments in Shropshire and Kent providing another 128 bedrooms, with the expectation the new homes will add £2.3m a year in rent.

Like Target, Urban Logistics (SHED ) hasn’t struggled to collect owed from the tenants that rent its last-mile logistics properties. The £259, trust, which raised £100m earlier this year to take advantage of the demand for warehouses driven by a shift to online shopping, confirmed it has already collected 98% of rent due for the quarter to September. 

The remaining 2% is due to be collected ‘imminently’, it said. 

‘This follows a strong cash collection in March when 100% of rents due were collected,’ said the trust. ‘The current levels of rent collection evidence the company’s proactive approach to strong covenants and intentional bias towards resilient sectors, such as food and pharmaceuticals, consumer staples, and other essential goods.’ 

The fund currently trades on a premium of 2.6% after the NAV fell 5.2% this year but the shares managed to stymie losses, dropping 2.9% year-to-date. 


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