Derwent Living partners with Aviva Investors in £45 millon stock transfer

In a landmark move, and a first ever for the UK housing sector, Aviva Investors has agreed a £45 million deal to fund the transfer of 839 properties from Home Group to East Midlands housing provider Derwent Living.

An additional 296 Home Group properties are also being transferred to Derwent Living with the funding being provided by Clydesdale Bank and The Royal Bank of Scotland.

The total funding for both of the deals amounts to £55 million for the transfer of 1135 social properties to the Derby-based provider from housing association Home Group which is rationalising stock outside its key area in the north east. The transfer will bring Derwent Living’s stock total to around 15,000 properties – making it one of the largest housing associations in the Midlands.

The funding was provided by the Aviva Investors REaLM Social Housing Fund which is part of the asset manager’s Return Enhancing and Liability Matching (REaLM®) strategy which aims to address the current underfunding issue being experienced by UK pension schemes by hedging against inflation risks and generating returns in excess of liabilities

Derwent Living’s chief executive Peter McCormack said: “Derwent Living is the first ever housing provider to acquire direct investment of pension fund money for social housing in this way. It’s a catalyst transaction which we believe will benefit the whole UK housing sector – allowing other RSLs to seek similar funding.

“This funding is particularly significant as it comes at a time when it is increasingly difficult to secure money from banks to provide much needed affordable housing.

“This is a new source of long-term funding without imposing financial covenants. The nature of the deal opens up the possibility of attracting a different source of long-term funding to the banks and bond markets. The nature of the pension fund investment ideally compliments the requirements of affordable housing. “

The move will further strengthen Derwent Living’s offering across the Midlands. 865 of the properties acquired are in Derby – Derwent Living’s core area for social housing. It will enable Derwent Living to provide an even more effective service locally in terms of maintenance and repairs.

“All of the properties will fit perfectly with our current stock,” said Peter. “The transferred homes are located in Lincolnshire, Derby and across Derbyshire.”

Derwent Living gained the housing stock from Home Group in a competitive tender process during 2010.

Derwent Living is already an innovative organisation. In 2005, together with Investors, it launched the first ever UK property fund investing solely in student accommodation. Derwent Living was also one of the first providers to gain investment from external sources to provide market rent properties in Derby.

Mark Jones, Derwent Living’s head of treasury, who worked on the transfer, said: “This deal opens up more opportunities for our organisation. Aviva Investors was attracted by our offering as the housing sector is seen as solid and long term. What makes Derwent Living particularly attractive is that while our core stock is social housing – we have a good record with non-social housing stock too.

“Derwent Living believes there is a natural link between pension funds and housing providers. The pension funds want something long term with indexed-linked structures. We have found that pension funds are turning to the housing sector because there is a lack of long-term investment. The housing sector is a safe bet. In short, companies like Aviva Investors are looking for something solid and long term.”

Peter added: “The aim is to increase our capability to create more affordable housing. This deal increases Derwent Living’s current affordable housing stock by 25%. Derwent Living was awarded an allocation under the HCA’s affordable housing programme and hope to fund it through Aviva. Our whole plan is to grow the social core of our business and provide much needed affordable housing for more people. Lack of significant public grant means that we will do this with our own private resources”

Savills acted for the Home Group.