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New social housing REIT targets £250m IPO

Responsible Housing REIT announces intention to float, looking to raise up to £250m to invest into supported housing accommodation across the UK.

Managed by BMO Real Estate Partners, part of BMO Global Asset Management, the REIT said it would aim to address a lack of available, quality accommodation catering for supported residents across a number of care sectors including adults and young people with learning disabilities, mental health issues, physical disabilities, addiction, those with support needs and those in need of temporary accommodation.

It said the fund would be differentiated from current listed supported housing REITs – Civitas Social Housing and Triple Point Social Housing –  by letting properties on tailored leases to registered providers that are aligned to the length of care-provision packages, and so appeasing Regulator of Social Housing’s (RSH) requirements.

It added that rents will be benchmarked against private market rents, while investment values will be benchmarked against vacant possession value.

Many of the registered providers of supported housing have come under the spotlight of the regulator for financial and governance issues and several notices published. Responsible Housing REIT said all leasees would be “proven operating track record and meet minimum screening requirements”.

Long-term demographic demand drivers

There is continuous demand for supported housing in the UK, but the sector continues to suffer from a lack of available, quality and fit-for-purpose accommodation. The group said the overall number of supported homes may need to increase by 30% by 2030 (from around 650,000 units in 2015 to 845,000 units by 2030) to accommodate the increasing demand. Additional demand is expected to arise from the continued implementation of the government’s Transforming Care Agenda, the overarching aims of which are to improve the overall quality of both the life of, and the care received by, such individuals by moving away from inappropriate, inpatient care towards responsive community based care.

The pipeline

The investment manager has an advanced pipeline of acquisition opportunities with an aggregate value in excess of the targeted fundraise. It said the investment strategy offers a scalable growth opportunity where the scale and expertise of BMO is combined with the experience and knowledge of dedicated advisers specialising in the supported housing sector.

Targeting 5% dividend yield target

It has a minimum targeted annual dividend yield of 5.0%, once fully invested, with the potential to grow the dividend in absolute terms through inflation-linked lease agreements. The income will be inflation-linked and ultimately funded by the Department of Work and Pensions through the registered providers (as is the case with Civitas and Triple Point). Total NAV return target of a minimum of 7.5% per annum over the medium term.

Management team

BMO Global Asset Management (EMEA) has over £85bn of assets under management, with 20+ years of investor engagement, managing 10 differentiated investment trusts. The specialist property manager manages assets of around £6.7bn (as at 30 June 2021), while a specialist team of advisers will be appointed with “extensive knowledge and market contacts assisting with the delivery of the investment strategy”.

Robin Minter Kemp, chairman of Responsible Housing REIT, said:

“Responsible Housing REIT offers the opportunity to invest in a much-needed social resource, where demand is on an upward trajectory and yet there is a lack of suitable Supported Housing accommodation to cater for these vulnerable groups. We believe that we can help meet this growing requirement with a leasing model that meets the specific needs of the sector aligned to the aims of the Social Housing Regulator.

“This will be an impact-led strategy, with a peer leading ESG framework, that also offers an attractive dividend underpinned by inflation-linked income supported by sustainable rents.”

Guy Glover, lead manager at BMO, added:

“We have been engaging extensively with stakeholders in the Supported Housing community, including Registered Providers, Care Providers and the Social Housing Regulator, culminating in the Responsible Housing REIT model, which we believe offers a new and compelling proposition for investors.

“While local authorities have a statutory duty to provide for those in need of Supported Housing, the UK faces a shortage of suitable accommodation, underpinning our conviction in a strategy delivering a balance between all stakeholders to create a truly sustainable model.”

New social housing REIT targets £250m IPO

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