Affordable and social housing has been moving up the political agenda. There is widespread concern about a shortage and there have been calls for a state spending spree to build more, but the government appears more inclined to rely on private housebuilders and housing associations to fill the gap. In that case, private-sector funding of social housing will need to increase – good news for investment trusts in the sector.
Why share prices have rallied
The biggest fund in this area, Civitas Social Housing (LSE: CSH), has seen its share price rally by 25% this year, with the Triple Point Social Housing Reit (LSE: SOHO) not far behind. The social-housing policy backdrop hasn’t been the key driver; investors realise that government backing for (subsidised) rent rolls is a better bet in a crisis than commercial leases, where tenants are walking away. Triple Point has said that 100% of rent due in the second quarter of 2020 had been received.
Both Civitas and Triple Point operate specialised supported-living accommodation for adults, many of whom have learning disabilities or mental-health care needs. Civitas, which yields around 5%, has also been quietly moving its focus towards a niche called high-acuity (medically intensive) care properties – shifting the business closer to healthcare than traditional social housing, which might in turn mean that the yield is dragged towards 4% as investors’ interest grows.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Both trusts report strong pipelines of new projects. Civitas has bought a £12m new-build, supported-living and healthcare facilities in Wales. It provides 65 beds for people with learning disabilities, autism and mental health needs.
Civitas also benefits from a low loan-to-value ratio of around 25% and is looking to boost dividend cover in the coming year to one. Triple Point recently completed the acquisition of 16 properties (comprising 70 individual units) for a total of £9.6m. Its dividend – the yield is also 4.9% – is already covered.
Then there is Residential Secure Income (LSE: RESI), which focuses on shared ownership. Rent collection has been unaffected and it boasts a strong growth pipeline. It recently announced the acquisition of 73 shared-ownership flats at the Clapham Park development in London.
As of 28 July the portfolio consisted of 205 homes, of which 88 were occupied, 44 were reserved and 58 were available for shared owners. The yield on this fund is 5.6% but the discount to net asset value (NAV) is 15%, which could tighten quickly if interest in social housing grows. However, the shared ownership model seems more exposed to a possible housing market downturn in 2021 as first-time buyers’ finances deteriorate after the end of furlough.
A potential bargain
The fund most exposed to a housing slowdown is the PRS Reit (LSE: PRSR). This fund invests in newly-built family housing for rent, a sector many think is primed for rapid growth as institutional investors move into the space vacated by buy-to-let landlords. PRS is at the forefront of this push and again, so far, rent collection looks strong. PRS Reit reported a 98% collection rate in the second quarter. It has built 2,082 homes since May 2017.
The board is targeting a dividend of at least 4.0p for the financial year to June 2021. There is some evidence that the economic downturn might encourage demand for rented accommodation: PRS reports that rental demand remains high, with over 500 reservations awaiting a move-in date. That will add £4.6m of annual rent once occupancy has started. PRS Reit has slipped by 15% this year and trades on a 20% discount to NAV. But my sense is that there is a shortage of affordable family homes. If PRS Reit can avoid a nasty spike in arrears in 2021, it could be a bargain.
-
Water companies blocked from using customer money to pay “undeserved” bonusesThe regulator has blocked three water companies from using billpayer money to pay £1.5 million in exec bonuses
-
Will the Bitcoin price hit $100,000?With Bitcoin prices trading just below $100,000, we explore whether the cryptocurrency can hit the milestone.
-
Halifax: House price slump continues as prices slide for the sixth consecutive monthUK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
-
Pension savers turn to gold investmentsInvestors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
-
Where to find the best returns from student accommodationStudent accommodation can be a lucrative investment if you know where to look.
-
Best investing appsLooking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go? We round up the best investing apps
-
The world’s best bargain stocksSearching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
-
Revealed: the cheapest cities to own a home in BritainNew research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
-
UK recession: How to protect your portfolioAs the UK recession is confirmed, we look at ways to protect your wealth.
