The Company will focus on well-located properties that provide a sustainable level of rent for the Company’s tenants (being the registered charities, housing associations, community interest companies and other regulated organisations to whom the properties are let). The Company will seek to maintain a significant spread between the weekly rents charged on its properties to its housing association and other tenants and the costs of alternative housing that would be, or is, otherwise used by local authorities to accommodate homeless people, such as local bed and breakfasts, hotels or guesthouses. This will also reduce the spread between assets’ investment and vacant possession values, protecting the underlying capital.
The fundamentals driving the continued growth and performance of the Company are:
- The critical need for further accommodation for the homeless in the UK, due to an increasing homeless population and a lack of available and affordable high-quality, fit-for-purpose stock to address the problem;
- The statutory duties (Housing (Homeless Persons) Act 1977, Housing Act 1996, Homelessness Act 2002 and Homelessness Reduction Act 2017) placed on local housing authorities to secure accommodation for people who are unintentionally homeless and in priority need and to provide meaningful help to any person who is homeless or at risk of becoming homeless irrespective of any priority need status; and
- The increasing unsustainable cost borne by local authorities in providing accommodation to the homeless. The severe shortage in fit-for-purpose housing stock means that local authorities often house individuals in bed and breakfast hotels and guesthouses which are significantly more expensive than the expected cost of housing an individual in one of the Company’s properties
The Company’s pipeline has been developed principally through relationships with housing associations, charities, local authorities and high-quality developers of social housing assets. The Company will identify the areas in the UK where the need for more homeless accommodation is most acute and work with its contacts to source and develop new high quality assets in these areas.
Government funding for each individual occupant generally represents the full cost of care and housing benefit for that person and is paid from the Department of Work and Pensions to the relevant local authority, which then passes funds directly to the Company’s housing association (or other) tenants.
The income flow to the Company is funded through the provision of ‘exempt’ housing benefit paid directly to the Company’s housing association tenants from the relevant local authority. Such exempt status prevents local authorities from restricting the level of rent recoverable by the Company’s housing association tenants via housing benefit and enables such housing association tenants to recover the full costs of providing additional support and services to residents.
Rental levels for the Company’s housing association and other tenants are set at what the Investment Adviser considers to be a sustainable level with significant headroom between property rent and housing benefit allowance received from the local authority. The headroom between core lease rent payable on the Company’s properties and housing benefit is represented by the management charge and the cost of intensive housing management/buildings upkeep associated with the provision of accommodation to the homeless.
Across the Company’s portfolio, the average rent payable by the Company’s housing association tenant will be approximately 40 per cent. of the total housing benefit received per property by that housing association tenant, providing a robust 2.25x portfolio rent cover. In addition, rents will be pre-agreed with local authorities and the leases will provide for a cap on the inflation linked annual rent reviews to ensure that rents grow in a sustainable manner.
The Company will be a passive landlord and will not undertake responsibility for the provision of the care operations for individual occupants. Instead, such care will be provided by a professional care provider in this sector.