Social housing real estate investment trust eyes £250m stockmarket flotation

The first Real Estate Investment Trust (REIT) to offer “pure play exposure” to social housing, Civitas Social Housing, is looking to raise £250m through a flotation on the London Stock Exchange.

Civitas said it intended to acquire a diversified portfolio of social homes in England and Wales.

The initial public offering document suggests that social housing “represents a significant market opportunity”, noting that:

• There was a substantial housing shortage in the social housing sector, with approximately 4.5m people currently on local authority housing waiting lists in the UK;
• The supply of new social homes had declined in 2015/16 “for several reasons including the reduction in government grant for new rented social homes”;
• Portfolios of social homes were becoming available for investment “due to current providers seeking to reduce costs and improve internal efficiencies”;
• Civitas had identified a significant pipeline of potential assets, including a near term opportunity in specialist social homes at a purchase price of circa £60m.

The company also noted that income would be underpinned by long term leases and occupancy agreements of typically 10 to 40 years; approximately 85% of rental income paid to the company by housing associations and local authorities would be directly paid by the government or local authorities; a targeted dividend yield of 5% was expected to increase broadly in line with inflation; and the social housing sector had not seen a loss suffered by funders as a result of a registered provider’s default.

Civitas also highlighted how its strategy had a positive social impact – enabling the development of new social homes by enabling registered providers to release capital currently tied up in housing stock to support the building of new social homes, and by helping them achieve their goal of improved operational and cost efficiencies.

The company will be advised by Civitas Housing Advisers, a management team that includes chief executive officer Paul Bridge, the former chief executive of Homes for Haringey and previously a Director of Hyde Group.

The combined CHA team “have had regulatory and operational experience in the highest level in the social housing sector, Civitas said.

Michael Wrobel, the PLC’s chairman, said: “The reduction in government grant for social housing, coupled with the social housing sector’s ongoing drive to improve efficiencies provides Civitas Social Housing PLC with a strong opportunity to assist housing associations and local authorities to free up the capital required to build additional social homes. This also provides investors an opportunity to access stable, long term income and capital growth, in the social housing sector which has not seen a loss suffered by funders as a result of a registered provider’s default.”

Paul Bridge said: “There is a significant need for additional social housing across England and Wales. Meeting this need requires innovative solutions to support the current network of providers. This includes enabling providers to gain access to capital that is currently tied up in existing housing stock. Releasing this capital will allow providers to fund the additional developments required to increase social housing. With the team’s experience, knowledge and relationships in the social housing sector, Civitas Social Housing PLC is well positioned to play a role in this important process.”