L&G primes affordable housing arm with quarter of a billion pounds of debt
Legal & General (L&G) has secured more than a quarter of a billion pounds of debt finance for its equity-funded affordable housing business, including £100m of index-linked pension fund money for its for-profit registered provider.
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The insurance, pensions and investment management company, which initially seed-funded the business with an undisclosed amount of equity from L&G Capital, has also agreed £175m of development finance, consisting of five-year revolving credit facilities from three banks, which will fund its house builder partners and support its pipeline of 3,500 homes.
The group said its committed pipeline has now passed £750m.
L&G set out its ambition around two years ago to create a sustainable funding model in which institutional investors are long-term holders of social housing assets “working alongside best-in-class affordable housing operators”.
Since then, it has registered its for-profit registered provider, L&G Affordable Homes, and created a framework of housing providers to manage its homes.
Simon Century, head of affordable housing at L&G, told Social Housing: “As the business has grown and matured, we’ve now reached a more stabilised, investment-grade position, allowing us to source attractive debt investment to scale further.”
He said the group may still bring in third-party pension fund capital later.
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In the meantime, the £100m of registered provider finance has been provided by L&G Retirement, offering a long-dated, index-linked, liability-matching investment secured against the income stream of its pipeline of affordable housing.
That was arranged through L&G Investment Management (LGIM) and subject to the same negotiation as a market transaction, Mr Century added, with the rate independently priced and benchmarked by a third-party advisor.
Half the money is tracking RPI – to reflect the RPI-linked rental element of shared ownership – and the rest is tied to CPI, the index against which social housing rents will track as of April 2020 as the four-year rent reduction comes to an end.
L&G Affordable Homes owns just over 100 homes at present, but said it is on track to “create” 3,000 homes a year by 2023.
Of its 3,500-home pipeline, 85 per cent have come via Section 106 acquisitions.
Mr Century said that while the provider’s first year had been about “getting up and running” using Section 106 acquisitions, 2020 is more focused on “rebalancing the portfolio”.
Similarly to other housing providers, he said there has been a particular focus on quality during the acquisition phase, along with the zero carbon and sustainable homes agenda.
Asked about the ongoing competition with housing associations in the Section 106 market, Mr Century reiterated his view that the emergence of new players means associations could deploy their capital elsewhere.
He added that L&G continues to look at ways to partner with more housing associations to bring equity into the sector, which could include more joint venture or for-profit registered provider vehicles.
Mr Century said that there are no plans to pay dividends for a number of years, adding that it remains “quite a capital-intensive business”.
Nigel Wilson, chief executive of L&G, said the group’s continued activity in the affordable housing sector “demonstrates our unique ability to create real assets which match our long-term pension liabilities, recycling the UK’s hard earned savings and pensions to support those most in need in society”.
He added: “We have already directly invested over £22bn into new homes, urban regeneration, clean energy and transport infrastructure. Bringing in pension fund capital gives us the scope to do even more.”
Social Housing special reports
Each month Social Housing focuses on a specific aspect of housing finance and collates and scrutinises the data for hundreds of housing organisations.
The reports below contain unparalleled commentary and analysis along with detailed sortable and searchable data tables.
Unit costs 2019 Our analysis of data from the English regulator has found that unit costs have risen among all types of housing association, with overall maintenance costs seeing the highest weighted average increase of nearly seven per cent
Impairment 2019 Housing associations’ impairments rise almost 40% in a year, driven by fire safety costs, contractor insolvencies and reduced land values
Global accounts 2018/19 Housing associations’ surplus for the year before tax decreased by five per cent to £3.76bn, driven by a 6.6 per cent drop in England
Affordable rent profile 2018/19 The level of affordable lettings dropped for the third year in a row
Staff pay Data from audited accounts of 206 housing associations shows that average staff pay in 2018/19 was £31,787 – a rise of 3.2 per cent over a 12-month period
Professionals’ league Our exclusive professionals’ league finds that activity continued apace in 2019, when housing associations increasingly looked to private placements
Sales proceeds Despite a 10 per cent rise in housing associations’ income from development sales in the last financial year, sales revenue is likely to remain flat over the coming years as a result of the property market downturn
Capital commitments The total capital commitments of 200 housing associations rose by 15 per cent in the past year, analysis by Social Housing has found
Reliance on sales surplus Social Housing finds that the total sales surplus of 150 English registered providers has dropped by nearly 10 per cent, as a result of lower market sales surplus
Stock dispersal How many council areas does your housing association operate in? How concentrated is its stock?
Accounts digest 2018/19 How does your housing association’s finances compare to others?
Housing Revenue Account part two How do councils compare in their 2018/19 Housing Revenue Account positions? Steve Partridge of Savills takes an in-depth look
Diversification of income We look at how housing associations are diversifying their income, and finds that they made 10.3 per cent more revenue from shared ownership and non-social housing activity
Impairment 2017/18 Social Housing takes a close look at the accounts of the 130 largest housing associations, and finds that impairments rose by nearly a third to £78.4m in 2018
Global accounts Social Housing’s analysis of the sector’s global accounts finds that housing associations’ pre-tax surplus fell last year – driven by drops in England, Scotland and Wales (August 2019)
Affordable rent profile We find that the number of affordable rent lettings recorded last year by housing associations in England has dropped for the second year in a row, suggesting that the sector is shifting away from the tenure
Capital commitments We scrutinise the capital commitments of the 208 largest housing associations in the UK (June 2019)
Housing Revenue Account part one Steve Partridge of Savills takes a look at the financial factors councils should consider in their Housing Revenue Account business planning (May 2019)
Reliance on sales surplus Our analysis reveals that profits form 42 per cent of 150 English housing associations’ total surplus (April 2019)
Sales proceeds We look at housing associations’ build-for-sale income and find a two per cent increase in 2017/18 (March 2019)
Shared ownership sales England, excluding London, has seen a four per cent rise in shared ownership sales – much lower than last year’s 16 per cent increase (February 2019)
Stock dispersal We show that housing associations’ general needs stock is becoming more concentrated within their local authority areas (January 2019)
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