ReSI secures GBP300m 45-year debt facility from USS

Residential Secure Income (ReSI), which invests in affordable shared ownership, retirement and local authority housing, has entered into a new GBP300 million, ultra long term secured debt facility with the Universities Superannuation Scheme (USS), one of the UK’s largest pension schemes.  

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 per cent 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 per cent and 5 per cent pa. 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 two to three per cent of the principle 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 GBP34 million of the facility, which, following the completion of the previously announced acquisition of the final 73 homes at Clapham Park, will be secured against its 166-unit shared ownership portfolio located in Totteridge and Clapham Park in London, with a carrying value of £68 million at the drawdown date.  After this initial drawdown, ReSI has a loan to value (LTV) ratio of 43 per cent 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 per cent (from 3.3 per cent).
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 cGBP36 million expected to be deployed into an identified pipeline of shared ownership opportunities in the near term. 
Shared Ownership has proven highly defensive throughout the COVID-19 crisis, with rent underpinned by owners’ mortgage providers, with ReSI continuing to progress first tranche sales throughout the second quarter with 24 net new sales. Of the 166 homes in ReSI’s shared ownership portfolio, as at 30 June 2020, 60 homes were occupied, 42 are reserved and in sales progression with a further 64 remaining available for shared owners.
ReSI’s shared ownership strategy was enhanced by award of Investment Partner status, announced in March 2020, by Homes England, to ReSI’s wholly owned for-profit Registered Provider of social housing, which on the same status awarded by the Greater London Authority in January 2019. This Homes England award allows ReSI to extend its shared ownership portfolio outside of London by accessing Homes England's GBP4.7 billion Shared Ownership and Affordable Homes Programme 'SOAHP' 2016-21 and a further GBP13 billion of grant funding to be allocated from 2021-22.
Alex Pilato, CEO of ReSI Capital Management, says: “This is significant milestone both for ReSI, as well as the social housing sector, representing the first standalone investment grade debt financing secured for shared ownership. 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”.
Ben Fry, Investment Manager of ReSI Capital Management, says: “The facility will allow us to complete ReSI’s deployment into our attractive pipeline of shared ownership opportunities working with a range of existing and new partners. Shared ownership provides significant social impact through delivering affordable homes near employment for key workers whilst providing an excellent, secure inflation-linked investment for ReSI.
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 house-builders.” 
Ben Levenstein, Head of Private Credit, USS Investment Management, says: “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.”
Eamon Ray, Senior Director, USS Investment Management, says: “We are pleased to be able to support the provision of affordable shared ownership homes throughout the UK, partnering with the team at ReSI to create a unique financing structure within the housing sector. This facility is an exciting opportunity to create a significant scale portfolio of affordable homes, delivering long-dated inflation-linked cashflows to USS with asset and cash flow backing.”