Overview of Social REITs

Social REITs and Their Relevance to Modern Society

A Real Estate Investment Trust (REIT) is a company that owns, operates, and finances real estate. Legally, they are required to pay at least 90% of their profits to shareholders as dividends. Social REITs, in this case, are REITs that invest in affordable housing, student housing, senior living facilities, hospitals, ... Their main goal is not financial return but rather social impact. 

But why are social REITs becoming increasingly relevant, especially in today's modern world? The ongoing housing crisis, mainly due to a lack of housing stock and rising rent, is creating an urgent need for affordable housing, senior care, and hospitals. Institutional investors, through strategic rent setting and land hoarding, push estate prices up to an unaffordable level, making it extremely difficult to afford rent, especially in densely populated cities. The government's attempts to control this problem were not successful, either with rent control being met with houses being put up for sale, or having to constantly change land use zoning cost lots of money and time.

Social REITs come in as a great solution to these problems. With the rise in ESG and impact investing, many investors, especially from pension funds or sovereign wealth funds, are actively looking for socially impactful investments, and social REITs have become a great asset class for them to diversify their portfolio. On top of that, the public sector's infrastructure, such as affordable housing (municipal housing), a senior care center, or health facilities, may lack investment from the government. Social REITs allow private investors to invest in what is helping their country, but have much higher returns than government bonds. 

The Top 3 Most Influential Social Residential REITs Today

1. Civitas REIT

IPO'd on the London Stock Exchange in 2016, Civitas REIT was the first UK-listed social housing REIT. The Civitas portfolio primarily consists of properties rented to registered housing providers who serve individuals or families needing special care. Funded by government-backed housing benefits, such as tax exemption on rental income, Civitas's focus was on long-term, inflation-linked leases (basically rent raises along with inflation, if inflation rises by X%, so does rent, often measured by using CPI), providing a steady and predictable rental income for them.

Financially, Civitas has delivered a consistent dividend yield in the range of 6%-8% (which is higher than the typical stock average), and a loan-to-value ratio of around 35% showing a stable leverage. Despite its positive social impact, Civitas still faces scrutiny for its management and relationship with the care provider. In 2023, after years of operation, it was acquired by CK Asset Holdings and was taken private, marking its end as a publicly traded social REIT.

2. Triple Point Social Housing REIT PLC

With the main focus on providing high-quality supported housing for vulnerable adults in the UK, this REIT has operated for well over 8 years. Throughout this period, they have provided housing support for people with learning disabilities, autism, mental health conditions, and people at risk of homelessness. With government backing and investors' empathy, as of June 2024, Triple Point Social Housing REIT has helped over 3,297 households across 481 properties. Similar to Civitas, the rental pricing model was based on CPI-linked leases, allowing both tenants and investors to be able to 'predict' their payment and returns. 

Despite being a social REIT, their dividend yield is still really high at around 8.7%, which is paid out to investors quarterly. Their returns are explained through government backing, their usage of a fixed-rate debt (averaging 2.7% interest), and a loan-to-value ratio of around 37%. Triple Point Social Housing REIT showcases one important point: social REITs do not necessarily mean low returns. Investors looking at impact investing should consider these, as they offer both financial and social returns. 

3. Community Development Trust

Founded in 1998, operating as a private REIT, its mission is to provide long-term capital (both in debt and equity) for the creation of affordable rental housing across the USA, with a focus on both financial and social returns. Since its creation, CDT has over $1.5-$1.8 billion in capital, which has helped preserve and/or create around 48,000 housing units for over 120,000 residents.

Their model is very different from the other two, as it is private. Money is typically raised from banks, pension funds, foundations, or other private funds. This money, like a typical REIT, is then going to be used to fund the acquisition or development of affordable apartment buildings, or to give loans out to housing developers that build or preserve affordable housing. Through lots of partnerships with non-profits, local housing authorities, and organizations, CDT can keep rent low (below market level), avoid gentrification, and make the housing stable and long-lasting.

With an annual yield of around 4-6%, CDT can be seen as a relatively safe and stable investment. However, in comparison to the other two, the yield does not look as attractive, despite that their other goal, which was for the social impact, weight a much higher purpose than the return. It has kept more than 120,000 residents suffering from high rental prices, it protects the community from getting gentrified, and most importantly helps college students and old dependents save up their money. 

Conclusion

Social REITs are becoming much and much more relevant in the current society, with more and more investors looking for impact investment opportunities (even J.P. Morgan has a team of ESG investment analysts). Civitas, Triple Point, and CDT all prove that social REITs are not only for the social impact, but they can also be a great investment financially. In the end, I hope this post gives you a better understanding of social REIT and its relevance in today's society.