Associations to raise £500 million with stock exchange ‘privatisation’ plan
Landlords to float on stock exchange
A consortium of 10 housing associations is to list a company made up of 10,000 social homes on the junior London stock exchange in September.
In a move that will be viewed as a step towards the ‘privatisation’ of social housing, the launch of an aggregated social housing real estate investment trust, known as a REIT, will see investors trade shares and hold the associations to account over the management of their stock for the first time.
Until now, landlords have relied on raising cash from grant funding from the government or through debt lent by banks or raised from investors on the capital markets.
The government wants to see institutional investors plough cash into the social housing sector through tax efficient REIT vehicles instead, and is currently carrying out a consultation on how this can be done.
Under the aggregated REIT model devised by law firm Winkworth Sherwood, 10 small south east-based associations hopes to raise an initial £500 million by floating on the Alternative Investment Market to increase in size by up to a third.
The participating associations, which cannot be named due to stock exchange rules, plan to use the cash raised to invest in building homes and buying section 106 sites.
Institutional and retail investors will receive returns of around 4.5 per cent over a 40-year period that will be indexed to social housing rents so that landlord and investor liabilities are matched.
At the end of the 40-year period ownership of the properties will revert to the associations, which will continue to manage the homes throughout.
Keith Jenkins, senior partner at Winkworth Sherwood, claims the firm has developed a mechanism to avoid the REIT being regulated by the Homes and Communities Agency - although he declined to give details, citing commercial confidentiality.
‘We are satisfied this will be treated as a straight financial risk,’ he said.
Mr Jenkins conceded it posed some risk to participating landlords if rents fell, but said this was manageable. He also argued introducing shareholders would make landlords more accountable.
‘People say we don’t want to be selling the family silver [housing assets], but if you are not a silversmith why hold on to it? It is joining with private investors to create more social housing. The Treasury consultation can be read as an examination of how the government could use REITs as a way of compelling associations to permit private investment. If this is true, the argument today would be REIT or REITed.’
Lucy Thornycroft, interim head of investment policy and strategy at the National Housing Federation, said: ‘There is no inherent conflict of interest between bringing new sources of equity funding into the sector and protecting new and existing tenants, though regulatory and risk implications will need careful consideration.’
Winkworth Sherwood is also preparing to launch a second REIT that will buy market sale properties built by three large associations at a wholesale price, but will provide security of sale for the participating landlords.