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Regulator fears ‘conflicts of interest’ at associations similar to First Priority
The Regulator of Social Housing is seeking assurances over “conflicts of interest” at housing associations with similar business models to First Priority.
In a letter to these housing associations, the regulator said it was seeking “assurance that registered providers are financially viable and properly managed”.
First Priority, which was recently censured for “a fundamental failure of governance”, owns no housing itself, but leases properties from other organisations, including real estate investment trusts (REITs), which generally seek a 5% dividend for their shareholders.
The letter asked for various financial details of the organisations with similar models, questioning whether “any potential or actual conflicts of interest” had been identified.
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The regulator also sought copies of ‘typical’ lease agreements and any nominations agreements the associations might have entered into, as well as copies of budgets, cash flow actuals, forecasts, assumptions, key performance indicators and other information used to monitor the associations’ portfolios.
The Regulator did not reveal the number of housing associations to whom it had sent this letter, but Simon Dow, interim chair of the Regulator of Social Housing’s Regulation Committee, said at the Social Housing Finance Conference that he believed there were “about two dozen” of “this type of organisation”.
He added: “We understand that this is a slightly different model, and it has different drivers and potentially different impacts. We are in the process of carrying out a study. What we’re going to do is take a close look at this area to make sure we have as good an understanding as we can.”
As Inside Housing reported in August, none of the associations that have been named as doing deals with REITs owns more than 1,000 units, except for Places for People.
Max Shenkman, head of investment at Triple Point REIT, which is not involved with First Priority but has done deals with similar associations, told Inside Housing: “We maintain an active dialogue with the regulator and view their request for information from some of the housing associations with whom we work as a positive.
“The regulator’s questions and information requested are similar to those that we ask as part of our ongoing due diligence and review of the housing associations we lease assets to.”
A spokesperson for Civitas, which leases around £40m worth of property to First Priority, added:
“We work with a range of housing associations with which we seek to build long-term relationships. Today we have 13 housing association partners. We work closely with all our housing association partners to encourage best practice and an institutional-standard approach.”
What is a REIT?
A real estate investment trust (REIT) is a company that raises money by issuing shares on the stock market and uses it to buy up property in order to raise income and provide a dividend to its shareholders. REITs generally aim to provide a 5% return to investors.
They are exempt from corporation tax on any profits they derive from their property rental businesses.
REITs have been investing in other areas of real estate for decades but have only become involved in social housing since 2016.
In general, the REITs that have launched in the sector have bought properties, repurposed them to be used as supported housing, and leased them to housing associations that own very few homes themselves at levels of rent linked to inflation.
