November 19, 2012 7:02 pm

Social landlord moves into profitable renting

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Places For People (PfP), the social housing group, has bought a property management company, in a further sign that social landlords are seeking to subsidise low-rent tenants through profitmaking operations.

Under a deal announced on Monday, PfP, which owns 63,000 homes, will acquire Touchstone, a firm that manages 20,000 private rented properties, for £15.9m.

PfP has owned a small number of private rented homes since 1999, and currently operates 3,100. It aims to increase its new rental subsidiary’s portfolio to 30,000 homes over the coming decade.

David Cowans, chief executive of PfP Group, said the acquisition was primarily about expanding range of housing it offered. But he added that it would “create cost synergies”, helping the landlord to build more social housing.

“We have spent the last 10 years looking at how we can provide housing options right across the market,” Mr Cowan said. “One of the biggest issues is the quality and scale of management in the rented sector. We wanted to combine our knowledge of the wider market with the expertise of a private rental firm.”

The coalition government has cut funding for affordable housing from around £3bn a year to £450m a year since it came to power in 2010, making it more necessary for social landlords to generate their own cash, to help finance new housing stock. In September, housing minister Mark Prisk called on social landlords to provide new homes for a wider demographic, including market rent and sale.

PfP is not the first housing association to move into the mainstream rented sector this year. Thames Valley Housing Association has launched subsidiary Fizzy Living, which aims to create a £200m private rental portfolio. London’s largest housing association, London & Quadrant, is also planning to acquire 1,000 rented properties for £250m over the next three years.

The rented sector has expanded from 2.5m homes in 2002 to 4.8m now, according to estimates from property agent Savills. It calculates that average rents have increased by 6 per cent in the past year, and forecasts that they will rise by another 4 per cent a year for the next five years.

Yolande Barnes, director of research at Savills, said PfP’s move was a logical response to the changing environment for social housing groups: “Housing associations have quite quickly grasped that there is no more grant – forget the public sector – and have set out to find other alternatives,” she said. “Touchstone provides exactly the asset management skills that Places For People does not have, while PfP can provide the money and the properties.”

Places For People has sought innovative ways to finance its expansion in recent years. In 2011, it issued the sector’s first retail corporate bond and it has now raised £180m in total through two retail bond issues. In 2010, it carried out a £76m private placement with a Japanese investor, involving a yen currency swap.

The company also wants to attract outside investors by setting up a social housing real estate investment trust.

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