Investors in the burgeoning social housing market have received a taste of the potential risks after two investment companies, Civitas Social Housing and GCP Infrastructure Investments, were forced to make statements regarding the troubled First Priority Housing Association.
The housing association based in New Malden, Kent, was put under review last month with a subsequent report from the Regulator of Social Housing (RSH) finding it lacked 'sufficient working capital' and was trading 'on the goodwill of its creditors'.
The watchdog has appointed three new board members, according to records at Companies House.
Civitas Social Housing (CSH), the first real estate investment trust (Reit) to invest in sheltered accommodation for vulnerable people when it floated last year, leases 45 of its 403 properties to First Priority. It has assured investors it will not enter into any new leases with the housing association.
The £362 million Reit confirmed that all rents from First Priority had been received in full up to the end of January. The team does not expect First Priority to struggle to meet its lease obligations and is therefore confident that there will be no impact on the fund's dividend targets.
‘Civitas is actively working with First Priority to ensure there is no disruption to the underlying tenants. Until the current situation is resolved, the company will not be entering into any new leases with First Priority,’ the company said in a stock exchange announcement.
Nevertheless, the negative news surrounding First Priority has affected Civitas's share price. From a high of 109p on 16 February, the shares have slipped to 103p, down 0.5p today. They shed 1.9% yesterday following the announcement to close at 103.5p, an 8% discount to net asset value. The shares have de-rated from an 8% premium since last September.
Debt investor GCP Infrastructure Investments (GCP), which has 3.8% of its £1 billion portfolio invested in a loan secured on 24 properties with 35-year leases held by First Priorty, was also under pressure.
Its shares dropped 2.6% to 117.6p yesterday as it said there had been no impact yet on the loan to Supported Living Infrastructure.
‘Interest payments due to the company in connection with the loan note are up to date and there are no outstanding payments due,’ it said.
The properties are understood to be fully occupied and rent payments are underpinned by housing benefit from local authorities, the company added.
The shares have dipped to 117p today to trade 5% above their NAV. Its share price premium has declined from a 17% high in December over investor fears of a possible clampdown on private finance initiatives from a future Labour government. This prompted Jefferies to upgrade the shares to 'buy', arguing the company had relatively low exposure to PFI.