Regulator declares another lease-based provider non-compliant

Falcon has entered into a series of long-term lease agreements with no break clauses and has a “concentration risk that comes from having long-term, low margin, inflation-linked leases as a single source of finance”, the regulator said.

It added: “We lack assurance that FHA has taken a suitably long-term view on assessing, managing and, where appropriate, addressing risks associated with this strategy to ensure its long-term viability, including ensuring that social housing assets are protected.”

The RSH said it also lacked assurance that FHA undertakes “adequate” stress testing.

The regulator identified that a “material number of the lease transaction arrangements FHA has entered into have involved companies which were, at the time, linked to directors and shareholders of FHA”.

It added: “The arrangements have continued to layer long-term risks on to FHA which we lack assurance can be managed under the current terms. Although these arrangements were disclosed to the board, we lack assurance that, before entering into them, FHA’s board adequately considered the implications.

“This includes the board’s consideration of the risk of leaving FHA open to reputational damage and criticism because of individuals involved, with influence and connections to both parties, being perceived to benefit from those transactions.”

On viability, the regulator concluded that it does not have “assurance that FHA’s long-term financial forecasts are based on appropriate and reasonable assumptions”.

It also said it lacked assurance that FHA was compliant with the Rent Standard.

According to the regulator, the FHA board has committed to working with it to address the issues raised.

Civitas said, as of 31 March 2021, Falcon represented 19.9 per cent of its annualised rent roll. “Rent collection continues as normal and this is expected to continue to be the case,” Civitas said in a statement to the markets.

Civitas said it noted the comments made by the RSH regarding transactions linked to “directors and shareholders” of Falcon and the observation that such transactions were disclosed to the board of Falcon.

“For clarity, all transactions undertaken between the company and Falcon have been on a fully independent and arm’s-length basis with no connection between CSH (Civitas), or its investment manager and Falcon, its directors, or shareholders other than in relation to the property transactions themselves,” Civitas said.

Triple Point said it has 65 assets leased to Falcon, the aggregate value of which, on 30 September 2021, was £61.8m.

Falcon represents 10.3 per cent of Triple Point’s current portfolio value and 10.3 per cent of its rent roll. “All rent payable under the leases with the group continues to be paid in full,” Triple Point said in a market statement.

It added that the group’s investment manager, Triple Point Investment Management "has an established relationship with Falcon and is in regular dialogue with the housing association, particularly with regard to the regulatory review".

Falcon has been contacted for comment.