Residential Secure Income said on Monday that it has entered into a new £300 mln (€332 mln), long-term secured debt facility with the UK pension scheme, Universities Superannuation Scheme (USS).
The new 45-year facility is drawable against acquisitions over the next three years and represents the first standalone investment-grade financing secured for shared ownership, a sector where growth and supply have been constrained by a lack of long-term institutional debt.
The facility provides ReSI with long-term and low-cost funds to achieve full income generation and subsequently grow its shared ownership portfolio. The RPI-linked debt has an annual coupon of 0.461% whilst the debt principal will inflate in line with the RPI linked rent in ReSI’s shared ownership leases, with an RPI collar of 0% and 5% p.a.
The debt was arranged for ReSI by TradeRisks Limited and is interest-only for the first three years and then will fully amortise over its remaining 42 years, with the fixed amortisation payments representing approximately 2 to 3 per cent of the principal per annum. Reflecting no refinancing risk and the strength of the shared ownership cashflows, the facility’s covenants are cashflow-based, rather than valuation-linked, thus ensuring covenant compliance is fully in ReSI’s control.
ReSI will initially draw down £34 mln of the facility, which will be secured against its 166-unit shared ownership portfolio located in Totteridge and Clapham Park in London, with a carrying value of £68 mln at the drawdown date.
After this initial drawdown, ReSI has a loan to value (LTV) ratio of 43% and an extended weighted average debt maturity of 23 years (from 19 years), and its average cost of debt is now reduced to 2.7% (from 3.3%).
ReSI will pay no commitment fees on undrawn amounts and expects to make further drawdowns from the new facility as it continues to grow its shared ownership portfolio, with £36 mln expected to be deployed into an identified pipeline of shared ownership opportunities in the near term.
‘The facility has been obtained at an extremely attractive rate with a great partner in USS and maintains our stated strategy of securing long term amortising investment grade debt which ensures asset quality, whilst minimising refinancing and covenant risk as well as interest rate exposure,’ said Alex Pilato, CEO of ReSI Capital Management.
Ben Fry, investment manager of ReSI Capital Management, commented: ‘We remain steadfast in our conviction that shared ownership is the most effective solution to lack of affordability and permanent fit for purpose homes, a view which has been enhanced during the current pandemic. Having identified shared ownership as a very scalable investment opportunity, we expect to focus our future deployment in this area, leveraging our strong relationships with housing associations and large housebuilders.’
Ben Levenstein, head of Private Credit, USS Investment Management, commented: ‘This investment will provide highly attractive inflation-linked cash flows to help pay our members’ pensions, while at the same time making a positive social impact. As a long-term, responsible investor, USS has been looking to make an investment in social housing for some time and we are pleased to be able to announce a long term partnership with ReSI. This investment will not only drive growth for ReSI, but also deliver much-needed supply to key workers and others looking for affordable homes.’
