ao link
Twitter
Facebook
Linked In
Twitter
Facebook
Linked In

You are viewing 1 of your 1 free articles

Giant Hong Kong investor enters lease-based supported housing sector with £350m in acquisitions

A Hong Kong investment giant amassed a UK property portfolio valued at more than £350m last year and, documents show, is leasing them to housing associations under a supported housing model which has been criticised by the Regulator of Social Housing (RSH).

Linked InTwitterFacebookeCard
 Li Ka-shing, who founded CK Asset Holdings and now acts as a senior advisor to the firm, while his son is chair and managing director (picture: Alamy)
Li Ka-shing, who founded CK Asset Holdings and now acts as a senior advisor to the firm, while his son is chair and managing director (picture: Alamy)
Sharelines

A Hong Kong investment giant amassed a UK property portfolio valued at more than £350m last year and is leasing them to housing associations as supported housing #UKhousing

CK Asset Holdings Ltd (CKAH), which was founded by multibillionaire Li Ka-shing and owns pub chain Greene King, formed the Jersey-registered company Social Healthcare Properties LP in December 2019.

The company has been purchasing properties for use as ‘specialist supported housing’ – a niche social housing tenure aimed principally at adults with learning difficulties or mental and physical disabilities, which commands very high rents covered by housing benefit.

It has been receiving investment advice from Civitas Investment Management, a major social impact investor.

Civitas Investment Management previously helped establish the separate, publicly listed fund Civitas Social Housing in 2016, which now has a portfolio worth £825m with 4,391 tenancies.

The RSH has been critical of the lease-based model amid fears for the financial sustainability of some of the social landlords which lease homes owned by the funds.

A valuation letter available on CKAH’s website, prepared by JLL in April, lists 320 properties purchased by Social Healthcare Properties in 2020, ranging from individual flats to care homes and entire blocks.

It states that the combined value of the properties at 28 February 2021 was £350.9m. All “are currently leased to various registered providers of social housing”, the letter adds.

Land Registry data shows that some homes listed in the JLL letter were sold twice in the same day at mark-ups of more than £500,000 on their way into the ownership of Social Healthcare Properties.

Civitas Investment Management said it is “by no means unusual” for prices for specialist supported housing reported on the same day to “vary significantly” depending on whether they take account of “very significant capital works” carried out on the homes to make them “suitable for occupation by people with significant care needs”.

Among the properties listed in the JLL letter is a bungalow in Yeovil which, according to Land Registry data, was sold twice on 8 June 2020, first for £355,000 to an unknown third party and then to a Social Healthcare Properties holding company for £857,000 – an increase of 141%.

JLL valued the property at £967,084 as of 28 February this year, 172% higher than the first 8 June 2020 sale price.

Another is a semi-detached house in Wembley, north-west London, which was bought for £940,000 on 25 September 2020 and sold again on the same day to Social Healthcare Properties for £1,600,695. That property was valued at £1,665,186 by JLL.

Other properties on the list include an ex-community building in Carlisle which fetched £200,000 in October 2018, £977,000 a year later and £1,956,522 in August 2020. JLL estimated it to be worth £2,209,211 by February.

In each of these cases it is not clear who made the earlier purchase before the property was sold on to the CKAH-owned Social Healthcare Properties.


READ MORE

Developer linked to lease-based providers faced dissolution warning over late accountsDeveloper linked to lease-based providers faced dissolution warning over late accounts
Homelessness accommodation REIT mulls equity issue after spending IPO fundingHomelessness accommodation REIT mulls equity issue after spending IPO funding
Liverpool-based landlord deemed non-compliant by regulator after ‘basic level’ failuresLiverpool-based landlord deemed non-compliant by regulator after ‘basic level’ failures
Major SSH REIT announces plans to expand into homelessness accommodationMajor SSH REIT announces plans to expand into homelessness accommodation
Regulator to become ‘more vocal’ in criticism of lease-based providersRegulator to become ‘more vocal’ in criticism of lease-based providers

JLL’s valuations are ‘investment valuations’ that take into account the potential value of the properties to investors, including the inflationary uplifts in rent which will occur over time under the leases.

This is distinct from the ‘vacant possession value’ of the property, which simply assesses the value of the property if sold empty on the open market. Civitas Investment Management said the ‘vacant possession value’ of the portfolio was around 80% of the investment values.

It said the uplift in vacant possession value from the original purchase prices was due to “extensive works that have been undertaken, or will be undertaken” to “ensure [the properties] meet the specific needs of care-based residents”. The firm stressed that vacant possession value rather than investment value was “the correct and standard valuation metric”.

All properties purchased for Social Healthcare Properties are “adapted, enhanced or redeveloped” to make them suitable for use as supported housing, it added.

Civitas Social Housing Plc is one of a group of funds established in the past five years to acquire properties and lease them to small housing associations for use as specialist supported housing.

The lease requires the housing association to make monthly inflation-linked payments to the funds, which provide a return to investors.

These payments are covered by the high rents charged for the properties, but difficulties can arise if the rent cannot be collected.

Often, the properties were ordinary homes before being adapted for use as specialist supported housing.

Proponents of the model argue it enables vulnerable people to live independently and costs the taxpayer less than institutional care.

But the approach and some of the housing associations involved have been the subject of sustained criticism from the RSH in recent years.

Of Civitas Social Housing Plc’s 15 registered provider partners listed on its website, eight have been declared non-compliant by the regulator.

Another, Auckland Home Solutions, which is Civitas Social Housing’s biggest partner representing 24% of its rent roll, is under investigation by the RSH for potential issues that may impact its compliance.

The regulator has pointed to recurring issues at some of these providers, including poor risk management, inappropriate governance practices and a lack of assurance over whether the rents being charged are appropriate.

Civitas Investment Management said all Social Healthcare Properties homes were subjected to “detailed testing of rental levels” and had been “entered into sustainable leases with counterparties”.

The JLL document relating to the deals is available on the CKAH website, but no formal public announcement of Civitas Investment Management’s involvement with the firm has been made beyond a reference on its website to an “Asia based leading global investor with an extensive track record in real estate and infrastructure investment”.

As a private company, Civitas Investment Management would have no obligation to publicise this information and said it is “normal and conventional within the fund management industry to refrain from publishing lists of underlying investee clients”.

SHP Investments 1 Ltd, identified by Land Registry deeds as the owner of many of the properties listed in the letter, names Civitas Investment Management bosses as its directors on Companies House, including group directors Andrew Dawber and Tom Pridmore.

Civitas Investment Management said it is “usual” for it to sit on the boards of property holding companies for its clients as part of its “normal investment advisory services”.

A spokesperson for Civitas Investment Management said: “Civitas Investment Management Limited is an award-winning, independently accredited social impact investor under IPC protocols with over £2.5bn of committed investor capital across a variety of funds including the FTSE250 company, Civitas Social Housing Plc.

“The private capital that we manage seeks to achieve responsible returns while delivering measurable social impact and this capital is invested across the UK on behalf of a wide variety of UK and international investment institutions.

“We take great pride in our careful, stringent and ethical approach, and our high level of collaboration with registered providers, local authorities and care providers.”

CKAH made a £1.5bn profit for its shareholders in 2020. It did not respond to repeated requests for comment.

Richard Petty, head of UK living advisory at JLL, said: “We confirm that we provided independent valuation advice to CK Asset Holdings Ltd, in a valuation report which was prepared using conventional valuation methods and in accordance with the RICS Valuation standards, reflecting the nature of the assets we have valued.

“JLL is proud to be associated with both CK Asset Holdings Ltd and Civitas Investment Management, as their property advisors; and to be involved in this sector, which provides homes for some of the most vulnerable in society and which has attracted significant social impact investment over the last few years.”

Sign up for our daily newsletter

Sign up for our daily newsletter