Our attention has just been drawn to an article in the financial media that describes SASH (Social and Sustainable Housing LP) in a way that could be misunderstood. This short note aims to clarify for the record how SASH works.
On 26 July 2021 Investment Trust Insider published an article by James Carthew entitled ‘Time for good social housing Reits [sic] to grow’. At the time of writing, this article can be found here.
The article includes the following two paragraphs:
“Schroder BSC Social Impact Trust (SBSI) has some exposure to this area too. The £77m investment trust has just doubled, to £10m, its investment in Social and Sustainable Housing LP. This is just one of a number of investments it has made into ‘high impact housing’.
The fund provides finance to social sector organisations which in turn buy properties that can deliver housing and support services to vulnerable individuals, invluding survivors of domestic violence, children leaving the care system, ex-offenders, asylum seekers, people with complex mental health issues and people with addiction issues. In essence, Social and Sustainable Housing LP is doing the same job as Civitas and Home Reit.”
Like Civitas Social Housing plc (‘Civitas’) and Home REIT plc, SASH operates within the supported housing sector. For the record, we would like to point out some of the most significant differences between the SASH model and that of the two REITs named in the article. Our comments reflect our understanding of Civitas and Home REIT based on reading their respective reports to investors.[1]
‘Landlord’ vs ‘distributed’ model
Civitas and Home REIT follow the traditional property investment fund model in which the fund owns the underlying properties. The fund acts as a landlord. SASH takes a different approach, operating what we call a ‘distributed’ model. SASH does not buy properties and then rent (lease) them out. Instead, SASH makes loans to social sector organisations (SSOs) so that they can buy and operate the right properties for themselves and their beneficiaries. SASH only makes a loan after ensuring that an SSO has a strong track record, backed up by good governance and relationships with local authorities.
Performance risk
Civitas and Home REIT follow the traditional property fund model which sees performance risk borne exclusively by their lessees (in this case, SSOs). Civitas and Home REIT lease arrangements have a contractually fixed current cost that may increase with inflation. This creates a financial risk for lessees, for example if voids are higher than expected or rental income does not rise. SASH funding is different: the current cost of a loan is variable and based on the performance of the properties that have been bought.
Lease maturity
As well as being fixed-cost, both Civitas and Home REIT’s lease arrangements are relatively long-term – up to 25 years or longer. SASH loans have a ten-year life; a variable current cost; and are secured with a first charge on the underlying properties that have been bought, but non-recourse to the SSOs.
We believe both the conventional ‘landlord’ model, when appropriately structured, and the ‘distributed’ model that SASH has developed have a role to play in addressing the issue of supported housing.
SOCIAL AND SUSTAINABLE CAPITAL LLP
[1] Available at https://www.civitassocialhousing.com/ and https://www.homereituk.com/. See also: Regulator of Social Housing, ‘Lease-based providers of specialised supported housing’, April 2019, available here
