REG - Social Housing Reit - Circular & Notice of General Meeting

Social Housing REITAnnouncement

22/01/2025 07:00

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RNS Number : 1865U  Social Housing Reit PLC  22 January 2025

22 January 2025

Social Housing REIT plc

(the "Company" or, together with its subsidiaries, the "Group")

Publication of Circular and Notice of General Meeting - Change to Investment
Policy

 

The Board of Directors announces a proposal to change the Company's Investment
Policy. Accordingly, a circular will be sent to Shareholders today (the
"Circular") containing further details of the proposals and convening a
General Meeting at which shareholders will be asked to consider and, if
thought fit, approve by way of an ordinary resolution, the amendments to the
Company's Existing Investment Policy in the form of the New Investment Policy
(as set out in the Appendix to this announcement).

 

It is proposed that the Existing Investment Policy is amended to increase the
maximum exposure to any one Approved Provider to 35% (from 30%) of the Group's
gross asset value, with the maximum aggregate exposure to the top two Approved
Providers not to exceed 55% (previously not restricted).

 

Rationale for the proposed amendments to the Existing Investment Policy:

 

My Space Position:

 

Recently, the Company has experienced a decline in rent collection, and
consequently dividend cover, following financial and operational issues with
one of its Approved Providers, My Space Housing Solutions ("My Space"):

·  The Company has not received any rent from My Space since the end of
June 2024, which represents 5.3% of Gross Asset Value and 8.1% of annual rent
roll as at 30 June 2024.

·     A new management team has been in place at My Space since the end of
2023 but, whilst there has been an improvement of operational performance, My
Space's financial performance has not improved.

·     My Space's rent arrears have historically been, and will continue
to be, fully provisioned for through the Expected Credit Loss.

·     As of December 2024, the Company has received My Space's financial
forecasts and the Company is of the view that My Space will not be in a
position to pay rent in the short to medium-term.

Given the above, the Company has concluded that, in order to reduce its
financial, operational and reputational risk exposure, it needs to find
suitable alternative Approved Providers to which it can transfer or assign the
leases on the properties let to My Space (the "My Space Portfolio").

The proposed change to the Investment Policy would enable the Company to
transfer the My Space Portfolio away from My Space to better performing and
better governed Approved Providers.

The approach is intended to achieve a similar improved outcome as experienced
with the transfer of Parasol leased properties to an alternative Approved
Provider, which has progressed well with both occupancy and rent collection
improvements whilst maintaining the provision of services to existing
residents.

Approved Provider Selection:

It is important to note the My Space Portfolio comprises Supported Housing
("SH") as well as Specialised Supported Housing ("SSH") properties, which
means that the Approved Provider transferee is required to provide both the
housing management services as well as the support to the underlying
residents. This differs to an Approved Provider that only provides SSH
services, where the services relating to the care or support for residents are
typically outsourced.

This means that any Approved Provider in a position to take on some (or all)
of the My Space Portfolio needs to have the expertise to provide both SSH and
SH services. This narrows the pool of alternative Approved Providers for the
My Space Portfolio. The additional flexibility afforded by the change in
Investment Policy will allow the Company to transfer the My Space properties
to the most appropriate Approved Provider(s), whilst maintaining resident
services.

Concentration Risk:

Whilst the proposed change in Investment Policy permits an increase in
concentration towards one Approved Provider, the Company believes that such a
change would be in the best interests of both the vulnerable residents and
Shareholders, in that the Company believes that it is better to be
concentrated to fewer but higher-quality Approved Providers.

In order to maintain a diversified portfolio and mitigate concentration risk,
whilst increasing the maximum exposure to only one tenant, the Company has
also proposed capping the maximum aggregate exposure to the top two Approved
Providers at 55%, resulting in a maximum exposure to the second largest
Approved Provider of 20%.

Disposals:

The Company is also proposing to remove the commitment within the Investment
Policy to "not be actively seeking to dispose any of its assets" as
Shareholders have expressed an interest in the Company pursuing potential
future asset or portfolio sales.

General Meeting

 

The proposed amendments to the Company's Existing Investment Policy in the
form of the New Investment Policy are deemed to be a material change to the
Company's investment policy, requiring the approval of shareholders pursuant
to Rule 11.4.14(2) of the UK Listing Rules, which will be achieved via the
ordinary resolution to be proposed at the General Meeting (the "Resolution").

 

The Resolution is important to the Company and the Board recommends that every
shareholder votes in favour of it, as the Directors intend to do in respect of
their own holdings.

 

The General Meeting will be held at 12:00 p.m. on 10 February 2025 at the
offices of Taylor Wessing LLP, Hill House, 1 Little New Street, London EC4A
3TR. The Circular and Notice of General Meeting will be mailed to shareholders
or otherwise made available today, together with a Form of Proxy.

 

The Circular and Notice of General Meeting is available to view and download
on the Company's website at www.socialhousingreit.com. Shareholders who
require a Form of Proxy should contact the Company's Registrars at:
Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol
BS99 6ZY.

 

A copy of the Circular and Notice of General Meeting will be submitted to the
FCA and will be available for inspection from the National Storage Mechanism
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .

 

Expected Timetable of Principal Events

 Publication and posting of the Circular, the Notice of the General Meeting and  22 January 2025
 the Form of Proxy
 Latest time and date for receipt of Forms of Proxy, CREST Proxy Instructions    12:00 p.m. on 6 February 2025
 or CREST electronic proxy appointments for the General Meeting

 Record date for entitlement to vote at the General Meeting                       6 February 2025

 General Meeting                                                                 12:00 p.m. on 10 February 2025
 Publication of the results of the General Meeting                               As soon as practicable after the conclusion of the General Meeting

Notes:

1.   The times and dates set out in the timetable above and referred to
throughout this document and any accompanying document may be adjusted by the
Company by announcement through a Regulatory Information Service, in which
event details of the new dates will also be notified to the Financial Conduct
Authority, the London Stock Exchange and, where appropriate, Shareholders.

2.     All references to times in this document are to London (UK) time,
unless otherwise stated.

 

Defined terms used in this announcement shall, unless the context requires
otherwise, have the meanings ascribed to them in the Circular.

 

ENDS

 

FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:

 

 Social Housing REIT plc                                Via Brunswick Group
 Chris Phillips

 Atrato Partners Ltd                                    ir@atratopartners.com (mailto:ir@atratopartners.com)

 Adrian D'Enrico

 Michael Carey

 Chris McMahon

 Akur Limited (Joint Financial Adviser)                 ssergeant@akur.co.uk (mailto:ssergeant@akur.co.uk)
 Siobhan Sergeant
 Tom Frost
 Anthony Richardson

 Stifel (Joint Financial Adviser and Corporate Broker)  Tel: 020 7710 7600
 Mark Young
 Rajpal Padam
 Madison Kominski

 Brunswick Group (Financial PR Adviser)                 Tel: 020 7404 5959
 Nina Coad
 Robin Wrench
 Mara James

 

The Company's LEI is 213800BERVBS2HFTBC58.

 

Further information on the Company can be found on its website at
www.socialhousingreit.com (http://www.socialhousingreit.com) .

 

NOTES:

The Company invests in primarily newly developed social housing assets in
the UK, with a particular focus on supported housing. The majority of the
assets within the portfolio are subject to inflation-linked, long-term, Fully
Repairing and Insuring ("FRI") leases with Approved Providers (being Housing
Associations, Local Authorities or other regulated organisations in receipt of
direct payment from local government). The portfolio comprises investments
into properties which are already subject to a lease with an Approved
Provider, as well as forward funding of pre-let developments but does not
include any direct development or speculative development.

 

The Company was admitted to trading on the Specialist Fund Segment of the Main
Market of the London Stock Exchange on 8 August 2017 and was admitted to the
Official List of the Financial Conduct Authority and migrated to trading on
the Main Market on 27 March 2018. The Company operates as a UK Real Estate
Investment Trust ("REIT") and is a constituent of the FTSE EPRA/NAREIT index.

 

APPENDIX

Proposed New Investment Policy

 

Investment Policy

To achieve its investment objective, the Group invests in a diversified
portfolio of freehold or long leasehold social housing assets in the UK.
Supported Housing assets account for at least 80% of the Group's gross asset
value. The Group acquires portfolios of social housing assets and single
social housing assets, either directly or via SPVs. Each asset is subject to a
lease or occupancy agreement with an Approved Provider. The rent payable
thereunder is, or is expected to be, subject to adjustment in line with
inflation (generally CPI) or central housing benefit policy. Title to the
assets remains with the Group under the terms of the relevant lease. The Group
is not primarily responsible for any management or maintenance obligations
under the terms of the lease or occupancy agreement, which typically are
serviced by the Approved Provider lessee, save that the Group may take
responsibility for funding the cost of planned maintenance. The Group is not
responsible for the provision of care to residents of Supported Housing
assets.

The social housing assets are sourced in the market by the Investment Manager.
In asset selection, consideration is given to the alignment of an asset to
supporting the impact objective sought.

The Group intends to hold its portfolio over the long-term, benefitting from
generally long-term upward only leases which are, or are expected to be,
linked to inflation or central housing benefit policy. The Group will not be
actively seeking to dispose any of its assets, although it may sell
investments should an opportunity arise, that would enhance the value of the
Group as a whole.

The Group may forward fund the development of new social housing assets when
the Investment Manager believes that to do so would enhance returns for
shareholders and/or secure an asset for the Group's portfolio at an attractive
yield. Forward funding will only be provided in circumstances in which:

·     there is an agreement to lease the relevant property upon
completion in place with an Approved Provider;

 

·     planning permission has been granted in respect of the site; and

 

·   the Group receives a return on its investment (at least equivalent to
the projected income return for the completed asset) during the construction
phase and before the start of the lease.

For the avoidance of doubt, the Group will not acquire land for speculative
development of social housing assets. In addition, the Group may engage third
party contractors to renovate or customise existing social housing assets as
necessary.

Gearing

The Group uses gearing to enhance equity returns. The Directors will employ a
level of borrowing that they consider prudent for the asset class and will
seek to achieve a low cost of funds while maintaining flexibility in the
underlying security requirements and the structure of both the Company's
portfolio and the Group.

The Directors intend that the Group will target a level of aggregate
borrowings over the medium-term equal to approximately 40% of the Group's
gross asset value. The aggregate borrowings will always be subject to an
absolute maximum, calculated at the time of drawdown, of 50% of the Group's
gross asset value.

Debt will typically be secured at the asset level, whether over a particular
property or a holding entity for a particular property (or series of
properties), without recourse to the Group and having consideration for key
metrics including lender diversity, cost of debt, debt type and maturity
profiles.

Use of Derivatives

The Group may use derivatives for efficient portfolio management. In
particular, the Group may engage in full or partial interest rate hedging or
otherwise seek to mitigate the risk of interest rate increases on borrowings
incurred in accordance with the Investment Policy as part of the Group's
portfolio management. The Group will not enter into derivative transactions
for speculative purposes.

Investment Restrictions

 

The following investment restrictions apply:

·    the Group will only invest in social housing assets located in the
United Kingdom;

 

·   the Group will only invest in social housing assets where the
counterparty to the lease or occupancy agreement is an Approved Provider.
Notwithstanding that, the Group may acquire a portfolio consisting
predominantly of social housing assets where a small minority of such assets
are leased to third parties who are not Approved Providers. The acquisition of
such a portfolio will remain within the Investment Policy provided that at
least 90% (by value) of the assets are leased to Approved Providers and, in
aggregate, all such assets within the Group's total portfolio represent less
than 5% of the Group's gross asset value at the time of acquisition;

·    at least 80% of the Group's gross asset value will be invested in
Supported Housing assets;

·    the maximum exposure to any one asset (which, for the avoidance of
doubt, will include houses and/or apartment blocks located on a contiguous
basis) will not exceed 20% of the Group's gross asset value;

·    the maximum exposure to any one Approved Provider will not exceed 30%
35% of the Group's gross asset value, however the maximum aggregate exposure
to the top two Approved Providers will not exceed 55% other than in
exceptional circumstances for a period not to exceed three months;

·    the Group may forward fund social housing units in circumstances
where there is an agreement to lease in place and where the Group receives a
coupon (or equivalent reduction in the purchase price) on its investment
(generally slightly above or equal to the projected income return for the
completed asset) during the construction phase and before entry into the
lease. Forward funding equity commitments will be restricted to an aggregate
value of not more than 20% of the Group's net asset value, calculated at the
time of entering into any new forward funding arrangement;

·    the Group will not invest in other alternative investment funds or
closed-ended investment companies (which, for the avoidance of doubt, does not
prohibit the acquisition of SPVs which own individual, or portfolios of,
social housing assets);

·    the Group will not set itself up as an Approved Provider; and

·    the Group will not engage in short selling.

 

The investment limits detailed above apply at the time of the acquisition of
the relevant asset in the portfolio. The Group will not be required to dispose
of any investment or to rebalance its portfolio as a result of a change in the
respective valuations of its assets or a merger of Approved Providers.

 

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