How to best engage with investors: a guide for housing associations returning to the market

By Celia Franch-López, Debt Origination Manager

Housing associations are re-entering the capital markets

With inflationary pressures easing and the economy stabilising, there’s a noticeable uptick in market activity in 2024, particularly in the public bond market. In January, Sovereign Network Group raised £400 million through the bond markets aimed at building 25,000 homes over the next decade. Equally, Paradigm Housing returned to the capital markets with a £250 million sustainability bond to fund their investment in new homes. And in April this year, Platform Housing issued a £250m sustainability bond to fund the provision of more quality, affordable and sustainable housing to alleviate the housing shortage across the Midlands. Private capital provided by institutional investors plays a crucial role in supporting these endeavours.

PIC builds on longstanding experience in the social housing sector

As a major investor in the UK social housing sector, and UK infrastructure more broadly. To date, PIC has invested more than £11 billion in real assets such as renewable energy, urban regeneration, and UK universities that provide social value up and down the country.

Nurturing that keen focus on social value investment, PIC has also partnered with more than 60 registered providers across the UK throughout the years, providing innovative financing solutions that help tackle the UK housing crisis and deliver high-quality affordable housing.

Social housing is a great asset class for PIC. As a pension insurer, our purpose is to pay the pensions of our policyholders. Many of these pension liabilities lie long in the future. Therefore, we invest in assets that provide returns in the long run. The appeal of social housing lies in its alignment with PIC’s long-term low-risk investment strategy. In total, we have provided more than £3bn in capital to UK-registered providers.

Tips to engage best with potential investors

While housing associations are starting to re-engage with investors, market circumstances remain challenging. Our experience shows that facilitating effective communications between lenders and registered providers can enhance the negotiation process and bolster financial prospects for housing associations. But how do housing associations best prepare for the dialogue?

Central, is of course, a robust investment case and an investment deck that allows lenders flexibility in their engagement. While some investors might want to go through an investment deck in more detail, others prefer to concentrate on specific topics and Q&A.

Transparency is key in addressing potential challenges upfront. Investors appreciate forthrightness regarding past or ongoing issues, along with proactive measures to mitigate risks. Not only does this establish a basis of trust but it also allows tailoring the best-possible financing solutions. At PIC, we believe in transparent communication and we hold strong, longstanding partnerships with the housing associations in our portfolio.

Beyond this, there is an array of critical issues related to the housing stock that investors are typically interested in:

• Decarbonisation works: What are the costs and timing of getting properties to EPC C? Is additional government funding expected? How far along the process is a provider?
• Fire safety: What are the costs and timing to ensure fire safety? How is fire safety funded? Are other developers and contractors part of the process?
• Development: How have housing associations adjusted their plans in the current macroeconomic environment? How do developers progress against projections? Are budgets met?
• Damp and mould: What have housing associations done to tackle these sector issues since they came to the forefront of the agenda? How are they adapting their policies in light of Awaab’s Law?
• Covenant performance: Investors need clarity of vital components of financial agreements that focus on evaluating and monitoring the borrower’s operational and financial performance
• ESG: Many investors have strict net zero targets and are mindful of the emissions of their portfolio. ESG disclosures by housing associations can be key data sources for investors’ due diligence.

The biggest tip, however, would be for housing associations to understand investor priorities and not assume all investors have the same concerns or the same sustainable finance objectives. Some investors will care if an investment is labelled sustainable or green, while for others ESG is embedded into their credit process and so they will want to understand how its embedded in your business.  Understanding the investor perspective allows housing associations to build stronger relationships with their investors, allowing them to make more informed decisions.

Conclusion

As economic pressures ease, housing associations are re-emerging in the market, signalling a renewed commitment to addressing the UK's pressing housing needs. To secure investment, positive, transparent, and collaborative conversations between investors and housing associations are paramount. By adopting the tips outlined above, housing associations can facilitate this dialogue, paving the way for mutually beneficial partnerships that recognise the urgent need to build more affordable housing in the UK.

This article previously appeared in Social Housing magazine on 6 May.