Social housing investors Triple Point (SOHO ) and Civitas (CSH ) have received another blow from the Regulator of Social Housing (RSH) as Auckland Home Solutions became the second housing association which leases properties from the real estate investment trusts (Reit) to receive an enforcement notice this year.

Shares in both Triple Point Social Housing  and Civitas Social Housing slipped after the regulator ramped up its action against Auckland after putting it on notice in 2021 over fears around governance and financial viability.

Since then, Auckland has failed to submit statutory accounts to the regulator, which are now more than six months overdue. The RSH has concluded that Auckland should be subject to an independent appraisal of its board’s skills and effectiveness, its record keeping and reporting, management of risk and conflicts of interest.

County Durham-based Auckland must also consider whether its housing stock needs to be reclassified if there is insufficient evidence that it meets the definition of ‘specialised supported housing’, which is exempt from the ‘rent standard’ that limits the maximum rents social housing tenants pay, and could mean it is mis-claiming rents.

The regulator has appointed new board members but said that voluntary deregistration as a social housing provider or a wind-down are also options.

The enforcement action against Auckland is the second such measure to hit the social housing Reits this year, following the enforcement of MySpace in January.

SOHO currently has 30 properties leased to Auckland, representing 4.5% of both the portfolio value and the rent roll. As of 31 Mach £41,064 of rent was outstanding, although the trust said this is ‘expected to be resolved shortly’.

The trust said its manager Triple Point Investment Management had ‘an established relationship with Auckland and welcomes the additional skills the new directors will bring to Auckland’s board’.

‘The manager notes that Auckland has been working towards addressing the matters raised by the regulator in August 2021, and has already begun the commissioning process for the independent review required by the regulator,’ it said.

SOHO shares dipped 2.3% on Friday when the enforcement notice was issued, adding to the steep falls the shares have suffered over the past year, down 42%. It was not alone, as Civitas shares dropped 2% on the day, and are down a third over the year.

Auckland represented 15.9% of Civitas’ annual contracted rent roll as of 30 September 2023, making it the Reit’s largest tenant, but unlike SOHO there is no outstanding rent to be paid.

The trust said its manager Civitas Investment Management has ‘a leading team of sector and asset management specialists who have worked in a supportive capacity with Auckland to assist in driving the operational and governance improvements that have been achieved to date and this work will continue’.

Social housing Reits have suffered a string of setbacks since the RSH was formed in 2018 as it took housing associations to task over their widespread financial and governance failures.

Numis investment company analyst Gavin Trodd said the enforcement against Auckland ‘highlights further scrutiny being applied by the regulator on the housing association tenants that are deemed persistently non-compliant with governance and viability standards’.

Trodd said both Civitas and Triple Point have reassigned leases away from housing associations with financial challenges, however the real problem lies in whether the properties leased to the housing associations meets the criteria for ‘specialised supported housing’ (SSH). If the property does not comply with SSH rules then reassigning leases would not address the issue.

‘The qualification as SSH stock is key to enabling a registered provider to make a housing benefit claim that is exempt from caps of the rent standard and thereby allowing it to pay rent to the listed funds that are in excess of the local authority rates for social housing,’ said Trodd.

‘Reclassification of units would therefore likely need to be accompanied by a reduction in rents the housing association pays, and we would also expect local authorities to seek reimbursement of historic rents if they have been charged on an inappropriate basis.’

Shares in both Reits reflect this uncertainty, trading at steep discounts of half their property values.