A handful of the largest for-profit registered providers signed new debt deals adding up to more than £1bn last year, as they looked to leverage portfolios amassed largely through equity capital, to fuel further delivery.
Sage Housing, ReSI Homes, L&G Affordable Homes and Heylo Housing all agreed significant debt finance during calendar year 2020, through a variety of mechanisms.
Blackstone-backed Sage Housing, whose just-published accounts show that housing property fixed assets tripled during the year to 31 December 2019 to £417.6m, raised £220m through listing a portfolio of 1,609 rented homes as a commercial mortgage-backed security (CMBS) on the Irish Stock Exchange in October 2020.
Gadi Jay, managing director – real estate at Blackstone, told Social Housing that investor interest in the deal was unprecedented for a CMBS-type deal, with around 100 attendees on its global investor call, “which is maybe three times more than you would expect to see on a ‘normal’ commercial mortgage-backed security”.
He added: “The more we do, the more we educate, the more we are able to get more investors into this space – and that should help facilitate future issuances and result in continued positive executions and ultimately fund the delivery of more affordable homes across the UK.”
The RP, whose parent company was owned 90 per cent by Blackstone and 10 per cent by minority shareholder Regis at 31 December 2019, has reaffirmed that it is on track to deliver 20,000 homes by the end of 2022, telling Social Housing it is close to having 12,500 units under contract to be built across its pipeline. Sage also extended an existing revolving credit facility by £200m during 2020.
Elsewhere, the real estate investment trust behind RP ReSI Housing, Residential Secure Income (ReSI plc), signed an ultra-long £300m loan with the Universities Superannuation Scheme, the UK’s largest private sector pension fund, in July. This marked the circa £67bn fund’s first within social housing and is understood to be the first standalone investment grade financing secured purely against shared ownership.
Ben Fry, fund manager at ReSI plc and its investment advisory Gresham House, told Social Housing that explaining shared ownership as a tenure to the lending community is “definitely a process”. But he said that ReSI benefits from being “lower leveraged than a typical housing association is” when it comes to looking at security, as a result of having an “equity cushion”.
Earlier in 2020, L&G Affordable Homes revealed it had agreed a long-term £100m intra-group loan from ultimate parent Legal & General Assurance, while a self-contained development subsidiary signed £175m of development finance with a syndicate of three lenders.
According to Simon Century, director of build-to-rent and affordable housing at L&G Capital, the provider is now closing in on 5,000 units in its pipeline, with more than 3,000 units already contracted. “That’s about £1bn of assets, and we’re looking to grow that a long, long way – the ambition is to get to 3,000 completed homes a year by 2023, and we are well on the way to doing that,” he said.
Debt will play a role in this, but Mr Century says that where gearing is concerned, “on the debt side, it has to remain at investment grade – it’s an absolutely pension regulatory insurer objective that we do that”.
Elsewhere, shared ownership RP Heylo Housing also agreed new borrowing during the year. The RP, which received investment from Lancashire County Pension Fund in 2014 and 2016 totalling £300m, has in previous years launched a series of bonds from its group subsidiaries.
Published accounts for Heylo show that in early March 2020, group subsidiary HH No2 Limited entered into a new facility agreement, in which (undisclosed) investors “agreed to lend up to £250m” to the company. The report notes that this matures in 2045 and is available for drawdown in multiple tranches, with an initial drawdown of £10m received at the end of March.
Meanwhile, smaller for-profits are also gearing up their portfolios, with sector advisors observing that debt is often more ‘development finance’ in nature and with a different pricing dynamic to the not-for-profit sector, although sometimes involving familiar lenders.
While some equity-backed for-profits have no appetite for debt finance, these tend to be the “exception, not the rule”, Naomi Roper, partner at Trowers & Hamlins, told Social Housing. “I don’t think there’s a one-size-fits-all in terms of their funding requirements and leverage ratios. I think it’s all very much depending on what capital they came with as to what they’re going out to market with.”