Social Housing REIT (SOHO) has proposed a change to its investment policy to increase the maximum exposure to any one approved provider to 35% (from 30%) of the group’s gross asset value, with the maximum aggregate exposure to the top two approved providers not to exceed 55% (previously not restricted).

The reason for the change is to adequately deal with a non-performing tenant, My Space (which represents 5.3% of Gross Asset Value and 8.1% of annual rent roll and which has not paid any rent since June 2024).

SOHO said that it believes that, in order to reduce its financial, operational and reputational risk exposure, it needs to find suitable alternative approved providers to which it can transfer or assign the leases on the properties let to My Space.

The proposed change to the investment policy is intended to achieve a similar outcome as experienced with the transfer of Parasol leased properties to an alternative approved provider, which has progressed well with both occupancy and rent collection improvements whilst maintaining the provision of services to existing residents.

SOHO noted that the transfer of leases is complicated by the fact that the My Space portfolio comprises both Supported Housing as well as Specialised Supported Housing (SSH) properties, which means that the approved provider transferee is required to provide both the housing management services as well as the support to the underlying residents. This differs to an approved provider that only provides SSH services, where the services relating to the care or support for residents are typically outsourced.

This narrows the pool of alternative approved providers for the My Space portfolio. The additional flexibility afforded by the change in investment policy, the company said, would allow it to transfer the My Space properties to the most appropriate approved provider(s), whilst maintaining resident services.

Whilst the proposed change in investment policy permits an increase in concentration towards one approved provider, the company believes that such a change would be in the best interests of both the vulnerable residents and shareholders, in that the company believes that it is better to be concentrated to fewer but higher-quality approved providers.

In order to maintain a diversified portfolio and mitigate concentration risk, the company has also proposed capping the maximum aggregate exposure to the top two approved providers at 55%, resulting in a maximum exposure to the second largest approved provider of 20%.

Disposals

The company is also proposing to remove the commitment within the investment policy to “not be actively seeking to dispose any of its assets” in order to pursue potential future asset or portfolio sales.

A general meeting has been arranged for 10 February, where the proposed changes will be voted on by shareholders.