Responsible Housing REIT announces plans to raise £250m in supported housing accommodation plan

Responsible Housing REIT has announced its intention to launch an initial public offering and to admit its Ordinary Shares to the premium segment of the Official List of the Financial Conduct Authority and to trading on the Main Market of London Stock Exchange plc. 

The Company’s investment objective is to generate a consistent and sustainable income-based return from the provision of Supported Housing accommodation assets and aligned sectors. The Company is dedicated to the expansion of Supported Housing accommodation and aligned sectors in the UK and will acquire and create quality, fit-for-purpose accommodation assets to cater for supported residents across a number of care sectors including adults and young people with learning disabilities, mental health issues, physical disabilities, addiction, those with support needs, those in need of temporary accommodation, the elderly and otherwise vulnerable individuals.

The Company will be managed by BMO Investment Business Limited (the “AIFM” or the “Investment Manager”), BMO REP Asset Management plc (the “Asset Manager”) and BMO REP Property Management Limited (the “Property Manager”), all part of the group of companies whose parent is BMO Asset Management (Holdings) plc (“BMO”).

The Company is seeking to raise up to £250 million by means of a placing, offer for subscription and intermediaries offer of Ordinary Shares (the “Issue”).

Highlights

A new approach to the provision of additional Supported Housing

• Properties will be let on tailored leases with a variety of lengths to registered charities, housing associations, community interest companies and other regulated organisations (together “Registered Providers” or “RPs”), which have a proven operating track record and meet minimum screening requirements.
• Leases will typically be aligned to the length of care-provision packages and underlying contractual documentation and, where appropriate, contain break options. This creates a new model which seeks to balance the needs of Registered Providers and investors and seeks to be aligned with the Regulator of Social Housing’s (“RSH”) requirements.
• The new approach will ensure transparency in the setting of rents with appropriate benchmarking against private market rents. Additionally, investment values will be benchmarked against vacant possession value thereby seeking to reduce risk.

Strategy underpinned by long-term demographic demand drivers

• The UK’s Supported Housing sector experiences continuous resident demand, underpinned by supportive demographic trends, but continues to suffer from a lack of available, quality and fit-for-purpose accommodation.
• Projections suggest the overall number of supported homes may need to increase by 30 per cent. from approximately 650,000 units (2015) to approximately 845,000 units by 2030 to accommodate the increasing demand.  A tailored approach is required as the differing support needs impact the volume of units required within each identifiable group and across localities (Source: Economics of Health and Social Care Systems Policy Research Unit).
• Additional demand is expected to arise from the continued implementation of the Government’s Transforming Care Agenda, the overarching aims of which are to improve the overall quality of both the life of, and the care received by, such individuals by moving away from inappropriate, inpatient care towards responsive community based care.

Scalable growth opportunity with asset selection based on strong real estate fundamentals

• The Investment Manager believes that a responsible approach from private investment will attract strong, compliant counterparties and deliver a more balanced solution for the Registered Providers resulting in an enhanced provision and better long-term outcomes for the residents.
• The investment strategy offers a scalable growth opportunity where the scale and expertise of BMO is combined with the experience and knowledge of dedicated advisers specialising in the Supported Housing sector.
• Relationships have been progressed with stock providers who have the ability to deliver a pipeline of assets with an aggregate value in excess of the targeted fundraise and which meet the Company’s investment objective and investment policy.

Sustainable income with low volatility underpinning an attractive 5% dividend yield target

• Inflation-linked income supported by low volatility and benchmarked rents which are ultimately funded by the Department of Work and Pensions through the Registered Providers.
• Minimum targeted annual dividend yield of 5.0 per cent. by reference to the Issue Price, when Net Issue Proceeds have been fully invested, starting from the financial period commencing 1 October 2022, with the potential to grow the dividend in absolute terms through inflation-linked lease agreements⁽¹⁾.
• Total NAV return target of a minimum of 7.5 per cent. per annum over the medium term⁽¹⁾.

A peer group leading ESG focus with a demonstrable and measurable ESG impact

• Focus on providing quality, fit-for-purpose housing for vulnerable individuals aligned to the needs of the Company’s tenants (being the Registered Providers) and the underlying supported residents.
• ESG considerations are a fundamental part of the investment process and will be fully integrated into constructing the Company’s property portfolio. ESG objectives will be applied and measured throughout the lifecycle of a property from acquisition through refurbishment and operation.
• Responsible investing is a core competency of BMO Global Asset Management, with approximately £8.0 billion of AUM in ‘responsible’ funds as at 31 March 2021. It is A+ rated for overall strategy and governance under the UNPRI and its dedicated Responsible Investment team consists of 21 professionals.

Highly experienced management team

• BMO Global Asset Management (EMEA) has over £85 billion of assets under management, with 20+ years of investor engagement, managing 10 differentiated investment trusts. The specialist Property Manager manages assets of approximately £6.7 billion (as at 30 June 2021).
• The Company will benefit from:
  • the Property Manager’s strong reputation and considerable experience;
  • a specialist team of advisers with extensive knowledge and market contacts assisting with the delivery of the investment strategy; and
  • an experienced and fully independent board with a diverse range of relevant skills and expertise.      

Robin Minter Kemp, Chairman of Responsible Housing REIT plc, said:

“Responsible Housing REIT offers the opportunity to invest in a much-needed social resource, where demand is on an upward trajectory and yet there is a lack of suitable Supported Housing accommodation to cater for these vulnerable groups. We believe that we can help meet this growing requirement with a leasing model that meets the specific needs of the sector aligned to the aims of the Social Housing Regulator.

“This will be an impact-led strategy, with a peer leading ESG framework, that also offers an attractive dividend underpinned by inflation-linked income supported by sustainable rents.”

Guy Glover, Lead Manager at BMO said:

“We have been engaging extensively with stakeholders in the Supported Housing community, including Registered Providers, Care Providers and the Social Housing Regulator, culminating in the Responsible Housing REIT model, which we believe offers a new and compelling proposition for investors.

“While local authorities have a statutory duty to provide for those in need of Supported Housing, the UK faces a shortage of suitable accommodation, underpinning our conviction in a strategy delivering a balance between all stakeholders to create a truly sustainable model.”

Expected timetable                                     2021