New social housing REIT lined up for listing

The company’s new fund manager, RESI Capital Management, has appointed former Family Mosaic finance director Ken Youngman as its chief financial officer, and has a number of Traderisks staff on its board, including chief executive Jon Slater.

The new entity is the third REIT to be launched in the housing sector in recent months, preceded by social housing investor Civitas and a new PRS REIT.

RESI REIT will seek to distinguish itself by concentrating on larger social landlords – both housing associations and local authorities – that are holding investment-grade stock and are closely regulated by the Homes and Communities Agency. This generally means bulk deals with landlords holding 1,000 homes or more.

The fund will target a long-dated, inflation-linked yield of 5% paid quarterly. With gearing the fund size could easily extend beyond £600m.

Other appointees include Ben Fry, formerly of Traderisks, who joins as managing director and investment manager and chairman Alex Pilato, who co-founded Traderisks in 2000.

The team will be emphasising the quality and investment-grade nature of their pipeline in the hope of securing particularly low-cost debt.

Baroness Dean of Thornton-le-Fylde, chair of RESI REIT, said: “[RESI] aims to become a long term capital partner of housing associations and local authorities, enabling them to increase their development of new homes by re-cycling capital whilst continuing to manage, maintain and rent out the homes.”

It is currently expected that the issue will open during the week commencing 19 June, and close on or around 6 July. Admission and the commencement of trading are currently expected to take place on or around 12 July.

WHAT IS A REIT?

A REIT is a special vehicle for investment in real estate, but it is only one of many different options for investors. The word ‘trust’ is a bit of a misnomer, because it is always a listed vehicle. Broadly speaking, a REIT does not pay corporation tax on its property rental profits, or on any gains from disposals of property.

However, in return for this tax treatment REITs have to distribute at least 90% of their profits to shareholders every year and must withhold income tax of 20% on these payments (although some investors are exempt from this). The aim of a REIT is for investors to be taxed as if they own the underlying property directly.

REITs were introduced in the UK in 2007, after a series of listed property companies were taken private and concerns that such companies were at a tax disadvantage to private fund investors. However, REITs exist in almost 40 countries around the world and the UK is a relative latecomer.

REITs were designed to give investors direct exposure to a particular property sub-market in a tax-efficient way. The rules stipulate that the development of property for sale can only constitute 25% of the company’s activity, so they largely buy ready-made assets or hold on to what they develop.

The UK REIT sector has grown from 17 REITs in 2007 to more than 50 at the last count. These span anything from shopping centre investments to secondary offices.

Only recently have we started to see residential property REITs, because it has taken until now for large amounts of standing stock to become available in the market. But there is tremendous interest from institutional investors looking for secure, long-term income – yields on bonds are ridiculously low and investors are increasingly looking to residential real estate to provide that income.

Ion Fletcher, director of policy, British Property Federation