A new investment trust run by a giant global asset manager has announced a plan to raise £250m on the stock market in order to fund supported housing using a “fairer lease model”.
A real estate investment trust (REIT) named Responsible Housing REIT has unveiled its intention to float on the London Stock Exchange.
It will invest the money in a “diversified portfolio of fit-for-purpose supported housing accommodation across the UK”, with a focus on homes for adults and young people with disabilities and mental health issues, known as specialised supported housing.
The trust will be run by BMO REP, the property arm of BMO Global Asset Management, which is responsible for more than £250bn in managed funds.
Responsible Housing REIT said its model has been devised following “extensive dialogue” with the Regulator of Social Housing (RSH), as well as councils, housing associations and care providers.
It plans to acquire, refurbish and develop properties for supported housing before leasing them to housing providers on “tailored” inflation-linked deals averaging seven years in length.
The duration of the leases is intended to mirror agreements with local authorities and care providers, while also including “appropriate break options”.
Rents – which will be paid by housing benefit – will be set via a “transparent process” and benchmarked against the private market, it said.
The REIT said this approach therefore “mitigates the financial burdens” on providers, helping them “to expand their involvement in the sector by using this fairer lease model” while supporting the regulator’s objectives.
For context, a handful of REITs and equity funds have entered the UK supported housing sector over the past five years using a model centred around leasing properties to providers on long-term agreements of between 20 and 30 years.
The RSH has declared more than 15 housing associations operating some form of the lease-based model in breach of its standards since 2018 and said it is “hard to see” how they can comply.
It has expressed concerns that the lease agreements with funders often leave too little money in the providers’ businesses to manage risks, while multiple lease-based organisations have been censured after being unable to justify their high rents.
Robin Minter-Kemp, chair of Responsible Housing REIT, said: “Responsible Housing REIT offers the opportunity to invest in a much-needed social resource, where demand is on an upward trajectory and yet there is a lack of suitable supported housing accommodation to cater for these vulnerable groups.
“We believe that we can help meet this growing requirement with a leasing model that meets the specific needs of the sector aligned to the aims of the social housing regulator.”
The REIT is targeting a minimum annual dividend yield for investors of 5% with a net asset value return target of at least 7.5%.
It has promised a “peer-leading” environmental, social and governance strategy with “measurable” impacts.
BMO REP will partner with specialist advisor Social Income on sourcing, refurbishing and developing homes as well as managing relationships with housing associations and care providers and commissioners.
Shares in Responsible Housing REIT are due to be issued in late September.
Guy Glover, lead manager at BMO, said: “We have been engaging extensively with stakeholders in the supported housing community, including registered providers, care providers and the social housing regulator, culminating in the Responsible Housing REIT model, which we believe offers a new and compelling proposition for investors.
“While local authorities have a statutory duty to provide for those in need of supported housing, the UK faces a shortage of suitable accommodation, underpinning our conviction in a strategy delivering a balance between all stakeholders to create a truly sustainable model.”
Demand for supported housing in the UK currently outstrips supply, with the Economics of Health and Social Care Systems Policy Research Unit projecting that the number of supported homes may need to increase by 30% between 2015 and 2030 – from 650,000 units to 845,000.