Sponsored Q&A: Fundamentum’s Jim Boyd on investing in a social housing REIT
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Sponsored Q&A: Fundamentum chair Jim Boyd talks to Room151 about the social housing REIT that helps provide housing for some of society’s most vulnerable adults.
Room151: In a nutshell, what does the Social Housing REIT invest in and why?
Jim Boyd (JB): The Fundamentum Social Housing REIT Plc (FSH REIT), invests directly into the UK residential property sector by acquiring assets and, where required, adapting them to accommodate adults requiring specialist care.
Working alongside registered and charitable housing associations, with local authority support, we provide housing for some of society’s most vulnerable adults: housing people with autism, mental health issues, various disabilities and homelessness, to name a few of the areas covered. By working in tandem with the government sector, we are creating the infrastructure to meet the shortage in supply for supported housing.
Support
Room151: In what ways do you work with local authorities?
JB: We work with local authorities in two ways. Firstly, over the years we have built up strong relationships with local authorities across the UK, working with their housing benefit teams to house and support tenants with specialist needs.
Secondly, on the investment side, we work with the treasury & finance teams that in many cases are looking at the FSH REIT as a portfolio of property assets adopting a long-term investment strategy with predictable income (c5% p.a). This is underpinned by a stable and predictable asset in social housing, with leases typically structured as a 20-year term, linked to CPI. From a local authority perspective, the FSH REIT investment is not classed as capital expenditure.
Room151: As a long-term investment in the social housing sector, to what extent are you dependent on reliable rental streams? Tell us a little about where the rents come from and how secure they are, particularly in times of market stress like the one we’re experiencing today?
JB: The rental income comes from a central government funding stream known as “exempt rent”. In effect, this means the funding comes from the Exchequer, and not local authorities. The amount due for a particular tenant is calculated based on a number of variables: geographic location, asset type and underlying care needs of the tenant. Since the FSH REIT listing, we have received 100% of rental collections, all on time, despite the unprecedented economic backdrop caused by Covid-19.
Needs
Room151: How are you able to ensure that the vulnerable adults you help to house receive the level of care and quality of housing that they require?
JB: This is primarily managed by the registered provider/housing associations. Before we acquire any property, we firstly need to understand the end users’ needs and, if any, adaptations are required to the property. For example, we will adapt the accommodation for people in wheelchairs with ramps, hoists, bathrooms and kitchens that are disability accessible.
For those with autism, we provide sensory rooms. The concept is that adults with similar needs, i.e. autism, are housed in the same building and, in many cases, with full-time carers who will oversee all of the tenants in the building. This allows vulnerable adults to live in a secure and homely environment, creating the opportunity for independent living particularly for those moving from institutional care to a more independent lifestyle which allows for integration back into the community.
Working with our providers, we have implemented an environmental, social and governance (ESG) policy along with reporting metrics to ensure our ESG requirements are met.
Room151: What does the ESG metric cover and can investors see examples?
JB: Our ESG Policy focuses on five core impact areas:
- Increase the supply of Specialist Supported Housing (SSH): Through continued investment in the sector;
- Improve the quality of SSH: By acquiring and refurbishing properties and purchasing new build properties;
- Improve tenant well-being: By working with reputable Housing Associations to improve care and living conditions;
- Improve environmental conditions: By improving EPC ratings and Carbon Dioxide emissions of the properties we acquire;
- Ensure corporate governance by our counterparties meets the requirements of the Regulator of Social Housing (RSH): Requiring our counterparties to meet certain criteria as required by the RSH.
We have implemented a quarterly reporting system to monitor all ESG areas with the housing associations we work with. This will be available to all our investors.
Impact
Room151: Why do you believe this is a good investment for treasurers specifically?
JB: The FSH REIT provides investors with the ability to own real estate assets secured by long-term inflation-linked leases that target 5% annual dividend. All rent in the supported housing sector comes directly from central government and has cross party support, at both national and local level, providing a secure income stream for our investors.
The FSH REIT is not available to retail clients which ensures a more stable NAV It is also not classed as capital expenditure. Finally, this is a social impact investment option, providing housing for some of society’s most vulnerable adults.
Room151: What ambitions do you have for the REIT and what demand is there for this kind of social housing?
JB: On the back of hitting our first dividend target (paid quarterly) and deploying all available capital, the FSH REIT is well placed to accept new investment and has given our current investors’ confidence in our investment model and approach.
Our ambition is to raise significant capital, while working alongside local authorities, to deliver a proposition that helps alleviate the shortage of supported housing desperately needed across the UK.
