Supported housing provider files for CVA

Enforcement notice from the RSH

 

In January 2023, the Regulator of Social Housing (RSH) published an enforcement notice against My Space.

 

Within this, the regulator said that My Space must commission solvency advice following on from a draft solvency report sent to the RSH in November 2022 to explore the three main options outlined in the report. These options included a CVA, administration and the ability of My Space to trade solvently.

 

My Space was told to submit the solvency advice to the regulator within 14 days of the date of the enforcement notice.

 

In tandem with the enforcement notice, the RSH downgraded My Space from its existing non-compliant grades of G3/V3, which were issued in December 2020, to the lowest grades of G4/V4.

 

At the time, the regulator said the provider remained non-compliant with the standard after “intensive regulatory engagement” since December 2020.

 

“This downgrade reflects that there are issues of serious regulatory concern, and My Space is subject to regulatory intervention or enforcement action both in relation to governance and financial viability,” the RSH said in its announcement at the time.

 

“In considering whether to serve an enforcement notice, the regulator has considered Section 218 of the [Housing and Regeneration Act 2008] and concluded this is a serious and recurrent case of non-compliance where My Space has failed to address the breach of standards in a prompt and effective manner,” it added.

 

“The regulator has also taken account of the regulator’s fundamental objectives under the act, and considers the issuing of an enforcement notice appropriate and proportionate in circumstances where in the judgement of the regulator, My Space has been unwilling and/or unable to address its breaches of standards.”

 

In the enforcement notice, the RSH said it concluded in a regulatory notice in December 2020 that My Space was non-compliant with the grades of G3/V3.

 

The regulator said that the regulatory notice found “significant weaknesses” in My Space’s business planning framework and “inadequate risk management processes and internal controls”.

 

It also said the notice concluded that the board had failed to manage its affairs with “an appropriate degree of skill, diligence, effectiveness, prudence and foresight”.

 

Social Housing REIT

 

Social Housing REIT is a real estate investment trust (REIT) that invests in specialised supported housing and has 34 properties let to My Space.

 

According to a trading update, Atrato Partners, which took over as Social Housing REIT’s investment manager from previous incumbent Triple Point Investment Management on 1 January, said it is now reviewing whether to support My Space’s proposals for a CVA.

 

Formally known as Triple Point Social Housing REIT plc, the company changed its name at the end of December to reflect the change of investment manager.

 

Atrato Partners said My Space has not paid any rent or other sums due to Social Housing REIT since June 2024 for the 34 properties the investor has let to the provider.

 

My Space’s rent arrears have been “fully provisioned” for through the expected credit loss, according to the update on Monday (3 February).

 

“The company’s [Social Housing REIT] investment manager Atrato Partners has been in active dialogue with My Space and its advisers in respect of its current financial situation and the proposals tabled to effect a recovery,” the trading update said.

 

“Atrato and its advisers are reviewing the proposals in order to assess how best to protect the group’s position in determining whether or not to support the CVA proposals.”

 

The trading update said it is anticipated that the creditor vote, which will include representation of Social Housing REIT, will take place on 28 February 2025.

On 22 January this year, Social Housing REIT announced a proposal to make certain amendments to the current investment policy.

 

It said this includes a tenant exposure investment restriction that would allow additional leases to be agreed with, or transferred to, “better-performing approved providers”.

 

“Such additional flexibility would be beneficial as the company works to deliver a solution to improve occupancy and restore rent collection across the portfolio of assets leased to My Space,” Social Housing REIT said in the trading update.

 

Subject to shareholder approval at the general meeting that is set to be held on 10 February 2025, the additional flexibility from the amendment would ensure “the broadest range of solutions” are available to the group, according to the update.

 

Social Housing REIT said it is “actively working” with My Space to ensure there is no disruption to residents across the group’s portfolio during this period.

 

The REIT said that “advanced discussions” to replace My Space with alternative approved providers are already taking place.

In the update on 22 January, Social Housing REIT said that the missed rent represented 5.3 per cent of gross asset value and 8.1 per cent of annual rent roll as at 30 June 2024.

 

My Space has been contacted for comment.

 

My Space’s 2023 financial results

 

In its results for the year ending 31 October 2023, My Space posted a deficit of £8.8m, and a restated deficit for the previous year (£16.2m).

 

“The deficits are principally a result of legacy issues regarding high levels of voids, underclaiming for housing benefits, poorly controlled costs, provisions for the collection of housing benefit and losses on the reclassification and surrender of finance leases,” Stuart Fitzgerald, chair of the board at My Space, said in the results.

 

Precedent for CVAs in the lease-based sub-sector

 

First Priority Housing Association was the first lease-based provider focusing on the provision of specialised supported housing to undergo a CVA. 

 

In 2018, First Priority went through a CVA enabling it to renegotiate its long-term leases onto a basis that the provider believed was more sustainable, which transfers risk to the appropriate party within the structure.

 

The CVA lasted about nine months from its approval in July 2018 to its completion in April 2019.

 

The RSH’s warnings of the risks surrounding the lease-based model

 

The regulator has previously warned about the risks of the lease-based model for specialised supported housing, and has highlighted governance and viability concerns around a number of providers operating under such arrangements.

 

In its 2024 Sector Risk Profile, the RSH cited its addendum to the 2018 Sector Risk Profile, which highlighted specific risks around specialised supported housing where the accommodation is leased to the landlord on a long-term lease.

 

“The risks identified in this addendum remain a significant concern,” the RSH said in its 2024 Sector Risk Profile.

 

“Boards of such landlords must ensure that they are able to manage the risks inherent to inflation-linked leases, including interruption to their cash flows and potential differential between index-linked liabilities and rental income.”

 

In its addendum to the 2018 Sector Risk Profile on this sector, the RSH highlighted some recurring themes of non-compliant specialised supported housing providers.

 

These included the concentration risk that comes from having long-term, low-margin, inflation-linked leases as a single source of finance and the thin capitalisation of some of the providers undertaking this model.

 

It also included poor risk management and contingency planning undertaken by some providers, some inappropriate governance practices that had led to poor decision-making, and a lack of assurance about whether appropriate rents are being charged.

 

“The five factors above have at times led to poor service delivery and failure to meet health and safety and other statutory requirements,” the regulator said in its addendum.

 

“Weak governance at many of these organisations has led them to develop business models that are unsustainable in the longer term and cannot withstand foreseeable downside risk.”