Housing association Hyde Group has issued a £400m, 35 year, 3%, bond secured on homes it owns in London and the South East
It is the largest long term bond ever issued in the sector and secured at the lowest price, according to finance director Peter Denton, who joined from Starwood Capital in February.
The bond will be entirely secured on assets within a subsidiary of Hyde Group, Martlet, which is a housing association in its own right, and has 7,000 affordable homes on its book across the South East. Essentially this allows a greater degree of transparency for investors wishing to see what the bond is secured on.
Denton said: “It has been undertaken in a ring fenced way by a material subsidiary of the group, a substantial housing association in its own right, which delivers a clarity of story to the wider institutional investment market.”
The bond was oversubscribed and has been closed with around 25 investors, which included more traditional buyers like institutions and pensions funds, but also global investment managers, European private wealth manager and US insurance money.
“I am not going to say it is full off brand new names,” said Denton, “But there are some really some interesting new names that are global sovereign wealth money and global investment money, that I am surprised to see.”
Martlet’s homes have a banking value of £600m and a vacant possession value of £1.23bn, and more affordable stock can be fed into the company, meaning more money can be raised on the assets.
Elaine Bailey, chief executive officer of Hyde Group, said: “The bank to bond move is more about getting a better balance that matches our portfolio.
“We want the short term funding for working capital, where we get the receipts from market sales, whereas with the affordable housing, when the return is much longer return, that’s where we want the long term bonds finance.”
Three pronged approach
Denton says Hyde will develop three strands of weaponry in terms of capital.
“One is debt, not just bank-driven but also a broad range of financial products to meet our requirements,” he said.
“The other two are investment management, delivering third party capital investment into the sector and then efficient asset management. This requires us, as well as everyone else, to be more diligent and focused on squeezing the relevant levels of capital out of our existing portfolio, without damaging or impairing our social focus as a result of that.”
The bond issuance can also be seen as part of the growing modernisation and sophistication of the Housing Association sector.
As there is a growing onus on private sales to fund development, there has been more pressure to behave like private companies, with modern methods of financing accompanying new forms of development and higher portfolio efficiency.
“The sector is being asked to step up very materially in a very short period of time,” said Denton.
“Increasingly investors are going to require us to be at the same quality of communication and information as the listed property sector. I would predict that within 24 months all housing associations of size will need to halve yearly trading statements.”
Hyde Group is one of the ten largest housing associations in the country, and will use the cash to pay down existing bank debt in Martlet and group debt. Rearranging the funding now will create liquidity and headroom for future funding and development needs.
Bailey says Hyde intends to build around 1,500 units a year, and has around 50,000 homes on its books.
She said: “One of the things the additional funding will do is give us some flexibility and freedom to pounce when deals come along, like land, properties already built or for sale, or in joint ventures. For me the advantage is that money has given us flexibility.”
It has existing development partnerships with Barratt, Mount Anvil and Countryside.
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