Bromford issues PPs as social housing offers a ray of light to investors
One of the sectors so far unscathed through the pandemic, in the eyes of institutional investors, has been UK social housing. Deals from housing associations have been priced during the crisis, as several institutions have said their resolve to invest in the sector remains undimmed.
“Frankly it’s one of the only sectors I’m confident to say right now that will continue to expand, both in terms of number of investors and also number of housing associations tapping the market,” said one senior PP investor on Wednesday.
Housing associations are non-profit organisations that build and operate low cost social housing. They have become the UK's main source of new rented housing and therefore key players in fixing the UK's housing affordability problem.
However, government funding for affordable housing, according to the National Housing Federation, has fallen from 50% of the cost of building a home before the financial crisis to around 12% last year. Housing associations have therefore had to become more inventive about finding funding.
For those housing associations not large enough to raise bonds themselves, one option is funding through The Housing Finance Corp (THFC), which issues bonds and lends the proceeds to participating housing associations. Another option is turning to the private placement market — a route becoming more popular for UK HAs.
One example of this is a £100m 40 year investment from L&G into Bromford Group, rated A+ and A1 by Standard & Poor’s and Moody’s, which Natwest Markets arranged. The deal, which has a 12 month delayed draw, was priced last week.
This is not Bromford's first time in the PP market. In February 2019 it sold a £100m 20 year deal to a variety of North American investors, also via Natwest.
“It’s very simple,” said Imran Mubeen, head of treasury at Bromford. "We want long dated money at the most competitive price from investors who understand our business plan and support our strategy and growth agenda."
Mubeen added in reference to the recent issue, “We want as many open routes to market as possible and have worked pro-actively to establish this. The 12 month deferral locked in rates at historically low levels, and the 40 year maturity with an amortising repayment structure means we benefit from long dated funding whilst avoiding a wall of refinancing.”
Bromford is not alone in this perspective. BPHA, Network Homes, Radius Housing, Thirteen and Your Housing Group among others have all issued private placements in the past twelve months.
"We'll see many more HAs take advantage of this market, as more and more investors from North America become interested in the asset class," said an agent who has brought several HAs to the market.
Steve Bolton, L&G’s head of private corporate debt in Europe, who invested in Bromford said: “Housing is a massive focus for L&G. In our latest annual report ‘housing’ and ‘homes’ are mentioned almost 190 times.
“Social housing is certainly a very defensive sector. Though the funding markets saw incredible volatility early on in the pandemic, social housing was a sector that came back quite quickly. The fundamental need for housing is not going away.”