Sponsored article: Jim Boyd talks about dividends, ESG and housing for some of society’s most vulnerable people.
In two months’ time, the Fundamentum Social Housing REIT Plc (FSHR) will be celebrating a milestone: its one-year anniversary since launching in November 2019. Throughout the current pandemic, the NAV has remained resilient and FSHR has just paid a further dividend to investors. The investment team continue to build out the REIT portfolio across the UK, providing housing to some of society’s most vulnerable people. While investors would expect REITs to meet their investment objectives in normal market conditions, we at FSHR are rightly proud that we have continued “business as usual” in what has been far from a normal investment backdrop.
Every cloud has a silver lining
The Covid-19 pandemic has been, and will continue to be, a global tragedy. In the UK it has created seismic shifts in our society and economy resulting in a real human cost which we in no way want to belittle. That being said, we believe the societal change triggered by the pandemic can be a positive force going forward. Over the past few months we have seen a far greater focus (from both the government and the wider population) on helping those most vulnerable in our society. We have also seen an increasing focus on ESG investment and a “green economic recovery” as we come out of lockdown. We would like to outline how this applies in the social housing sector.
Laying the ESG Foundations
Environmental, social, governance (ESG) principles have consistently been at the centre of the FSHR investment process. Specifically, the FSHR impact goals are as follows:
- 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 (energy performance certificate) 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) by requiring our counterparties to meet certain criteria as required by the RSH.
Our strategy
FSHR purchases residential properties, adapts them and works with local authorities to lease the properties to reputable housing associations. The core investment strategy focuses primarily on “supported housing” with some “general needs social housing”. Supported housing allows young adults requiring care to live in a secure and homely environment, creating the opportunity for independent living with appropriate levels of care and support as outlined in the Transforming Care programme of 2015.
The rental amount claimed for supported housing care is claimed by housing associations via local authorities that receive the funding stream from central government, known as “exempt rent”. In short, this is exempt from the LHA constraints that govern typical social housing in the UK. The amount payable by a tenant is calculated based on a number of variables, geographic location and underlying needs of the tenant being the most prevalent.
Dividend resilience
We are targeting a 5% annualised dividend, paid quarterly. All the leases that form the income stream are inflation linked, typically CPI. Since inception, local authority investors have received dividend payments on a quarterly basis and considering the backdrop of the current low interest rate environment, negative gilt rates and stock market uncertainty, FSHR has proven to be a solid investment proposition for councils. REITs are classed as a suitable investment for local authorities and, with the reality that negative interest rates are on the horizon and the potential impact on the traditional money market funds, the ability to find secure positive income from investments has never been more attractive.
The pathway for growth
During the pandemic, FSHR purchased four new properties providing housing for an additional 35 adults requiring care across the country. The government and local authorities have clearly stated that we face a housing crisis and FSHR is working to alleviate a small part of this crisis by supplying as much property as possible to meet the dedicated needs of the end user.
The private sector along with FSHR is providing the funding to assist in the housing shortfalls and both the NHS and mental health charity, Mencap, agree that more supported housing is needed to provide better outcomes for people with physical, mental and learning disabilities.
Conclusion
With a proven track record and working in conjunction with local authorities to house vulnerable adults, FSHR provides local authorities with a secure investment proposition offering long-term inflation linked income that meets key ESG standards.
Jim Boyd, is chairman of the Fundamentum Social Housing REIT PLC.
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