Why overseas investors are showing appetite for UK social housing
With two housing associations announcing lucrative private placement deals with North American investors within weeks of each other, Bromford’s head of treasury Imran Mubeen (below) talks about its significance given Britain’s current uncertainty over Brexit as well as what it means for UK social housing in general.
They say that failing to prepare is preparing to fail and it is this mantra that has led to Bromford maintain a strong financial position over a number of years. If we get that right we can do more of the things we are here to do: investing in existing customers, delivering more frontline services, and building new homes for future customers.
Bringing three organisations together in the past 12 months has led to further consolidation of our financial strength. We now operate at considerable scale, with broader geographical reach and continuing ambition for further growth. With aims to build 14,000 new homes throughout the Midlands and South West over the next decade, it is crucial we maintain strong levels of liquidity following the success of our £300m debut public bond finalised last April.
Our latest deal, a £100m private placement with five North American investors, caught the headlines again at the start of March. The deal was closed against the backdrop of unprecedented challenge in the UK markets and in the midst of market uncertainty surrounding Britain’s pending departure from the European Union. It also came as Network Homes announced a similar deal with US and Canadian institutions.
Despite this challenging operating environment, Brexit didn’t feature as a strong theme of the roadshows which involved our senior leadership team travelling to North America to meet investors. Instead they were captivated by the Bromford story reflected in an order book three-and-half times subscribed. During follow-up visits to the UK, investors were equally impressed by the quality of our homes and services, many of which are now delivered through dedicated in-house teams.
Their questions focussed on the nature of regulation, the dependency of income on government policy and the impact of welfare reform on rent collection. Investors were buoyed by the continuing high demand for social housing and the regulated nature of our core business activity.
Our new homes plan drew considerable interest and we were able to demonstrate our strategy around the development of market sale homes and our response to any market downturn. From that, investors could identify the core strength of the Bromford business model: our ability to repurpose tenure to meet the demands of fleeting or longer-term market changes as well as our capacity to withstand adverse changes to inflation, funding rates, development costs and sales values. This, coupled with our sector-leading credit ratings with Moody’s and Standard and Poors, our G1 and V1 regulator ratings, and our recent strategic partnership with Homes England gave investors’ confidence that we have the right balance between financial security and ambition to deliver on our vision to build more of the affordable homes that people need as well as strengthening our relationship with existing customers and, in turn, creating sustainable communities.
Two of the five investors are completely new to the sector and it is certainly an interesting and opportune time for these institutions to be coming into the UK social housing market. The US investor community has a long track-record of investing in other well-rated sectors in the UK and we were delighted to provide them with an opportunity to learn about the benefits of the social housing sector. Issuing the private placement with pricing inside of the trading levels of our secondary bond is certainly a paradigm shift for the sector and could prove to be a seminal moment for the sector.