In this guest piece, Max Shenkman, head of investment at Triple Point Social Housing REIT, outlines why social housing REITs are continuing to outperform other REITs as the UK battles coronavirus, and why investors should therefore be considering investing in this area of the market. He argues that they offer an opportunity to invest in desperately-needed new housing that has a meaningful impact on society, at the same time as generating stable, long-term, inflation-linked rental income.
2020 has been one of the most extraordinary years in recent history. We have seen unprecedented upheaval to people, businesses, and entire societies. Markets see-sawed. Numerous businesses have been casualties of the economic forces unleashed by the virus. Uncertainty now seems a permanent feature of our lives. More than ever, trying to predict which investments will succeed can be a fool’s errand.
In this context, the best remedy for investors seeking income may be investments with a track record of resilience. As an asset class, property is a traditional ally for investors seeking reliable income streams based on tangible assets.
But the sector as a whole has not been immune to the economic shocks caused by the onset of the pandemic. In June 2020, the Bank for International Settlements calculated that in the UK, US, continental Europe and Japan, the Covid-19 shock wiped out REITs’ cumulative valuation gains over the past five years.
However, the impact of the pandemic has certainly not been uniform, and certain types of property have performed better than others. Some REITs, whose tradeable shares offer liquidity in an illiquid asset class, have proved more resilient than others, offering steady real dividend yields at a time of market volatility and near zero interest-rates.
Positive impact, positive returns
Corporate orthodoxy states that you can either invest for profit, or you can invest with a social conscience. For this reason, some believe that investments that create a positive social impact as offering reduced, concessionary returns. But the last six months have shown that this view is becoming increasingly obsolete.
In fact, it is often the services that our society cannot live without that are likely to remain in demand – and therefore resilient – irrespective of the state of the economy. Recent research from Morningstar explored the financial performance of 745 European ESG funds and showed that the majority of these funds outperformed their non-ESG peers over one, three, five and 10-year periods.
UK REITs investing in social housing use investors’ capital to help address a growing structural imbalance between the supply and demand of housing for some of society’s most vulnerable individuals.
Triple Point Social Housing REIT funds the development of newly-built or newly-renovated housing in the community for people with long-term care needs – like learning difficulties and physical disabilities – whose rent is funded by government.
These properties, known as specialised supported housing, are typically adapted for long-term living, and are designed in coordination with local health commissioners to house people moving out of institutional care facilities like hospitals and care homes.
Health commissioners like these homes because they can improve resident wellbeing through housing individuals in their own community, while saving the government money. This type of housing provides better value for money when compared to institutional care.
Despite the difficult economic backdrop, Triple Point Social Housing REIT, which owns around 400 of these homes, received 100% of its inflation-linked rental income this year up to the end of August, and has paid all dividends in full since it launched in August 2017.
This shows that profit and purpose are often mutually reinforcing, and that the more investments address a vital societal need, the more resilient their income streams may prove to be.
*Max Shenkman is head of investment at Triple Point Social Housing REIT