Lloyds sets out fresh thinking for its PRS push

You know an asset class has become mainstream when a high street bank backs it. Even more so when that bank launches a new business dedicated to it. Last week, Lloyds became the first UK bank to invest in the private rental sector. The venture, Citra Living, will see Lloyds’ first foray into development, targeting new-build flats and housing in the suburbs. But for Citra Living managing director Andy Hutchinson (pictured), it’s not completely new. Hutchinson has worked at Lloyds for 11 years, and at Nationwide for 15 years before that, including a stint leading subsidiary at.home Nationwide, which specialised in renting residential property. His big takeaway: “You have to do it well, particularly being part of a bank or a building society. You have to be good at this, and you have to have strong values.” Hutchinson acknowledges that the market has shifted since 2008. “The regulatory landscape continues to evolve, and ESG has significant momentum as well,” he says. But amid upheaval in the sector, which also includes new taxes and planning reform, Lloyds isn’t discouraged. “We want to be a through-the-cycle investor,” Hutchinson says. Besides, some things don’t change. “Good properties will find good tenants and good tenants will be rewarded,” he adds. And as Lloyds prepares its expansion plan, there has arguably never been a greater demand for this product. Project Generation The bank’s PRS plans kicked off towards the end of last year, with the initiative code-named Project Generation. This saw Lloyds’ housing experts join forces with former L&Q chief executive David Montague and a team of external advisers to create the strategy and business plan. That strategy builds on a history of debt deals with housing associations, with £9bn committed to social housing since 2018. Lloyds has also provided £200m to regional housebuilders through the Housing Growth Partnership with Homes England. “A move to becoming a residential landlord is a natural progression,” says Hutchinson. “We believe in a UK where people should have access to safe, stable and affordable homes, in places they want to live in – and that doesn’t necessarily mean it is mortgaged homes.” But this is not a philanthropic venture – although there is a compelling social argument, there is also the business case. Hutchinson points out that 20% of the market is private rental and 90% provided by retail landlords, with “varied quality” offering huge opportunity for institutions. “Our shareholders would expect to do well commercially,” he adds. “We believe we can enjoy reasonable returns and it is a diversification of income for the group.” That’s what Lloyds aims to do with the Citra brand, which is designed to denote “freshness in the market”. Incremental growth It is clear that the messaging has been carefully considered. Hutchinson is modest about the bank’s ambitions, repeating a promise that Citra is “starting small”. “It’s important that we develop incremental stock in the UK,” he says. “We have absolutely no intention of just buying up property and causing prices to rise or causing difficulty for those who would want to buy them.” Following a debut scheme with a block of 45 flats at Weston Homes’ Nene Wharf in Peterborough, Citra aims to acquire 400 homes by the end of the year in similar schemes in secondary towns and suburbs. This will include a hub-and-spoke approach to create scale in areas of demand, with initial purchases to include completed stock. “We will look at some BTR stock, maybe some stabilised assets to give us momentum, while we refine our proposition and build up our strategic partnerships,” adds Hutchinson. He says this approach reflects the board’s mandate “to go about this with a degree of agility”. “We wanted to get some runs on the board,” he adds, emphasising the importance of results early on. However, M&A is not on the cards for this year, or next. “Lloyds has a record of acquiring, but we’ve decided to just put that down the track a bit. We wanted to make sure we weren’t running before we could walk.” Rather, Citra will grow across the UK, forward-funding development via a framework of partnerships – conversations are ongoing with housebuilders including Weston, strategic land promoters and, notably, a modular housing provider. For the journey Over time, through backing BTR on larger schemes of around 1,000 homes, Hutchinson hopes to accelerate wider mixed-tenure projects with affordable and private-sale homes. “That is our strategic target,” he says. “The stuff we are doing now is a bit more tactical; we wanted to start small, show some momentum, test and learn, build our customer proposition and then have that nice strategic pipeline coming round the corner.” In this way, Citra aims next year to add a further 800 homes to the portfolio, with homes held for at least 10 years. Initially the customer focus will be on “professionals, sharers and mid-market families”. It is “affordable with a small a”, not high-end. Citra will stay outside the M25, with a geographical focus around the Midlands and the North, supporting the levelling-up agenda. Down the line, this could expand into different types of rental catering to different demographics, for example city centre high-rise or specialist housing for senior living. “Lloyds talks about being there for the journey – there is no reason why people can’t move through Citra properties, through their rental journeys as their needs grow,” says Hutchinson. With his investment hat on, Hutchinson adds that this would also give the bank a balanced portfolio. While he continues to downplay the magnitude of the initiative, Hutchinson is also keen to communicate that no renter should be neglected. But all of this is firmly in the back of his mind, he adds. For now, the immediate focus is hiring the team of commercial directors to support these first key acquisitions and then an ops team to run it all. “We are starting small, growing the business,” Hutchinson adds again. “Even if we grew this to a substantial size, the private rental sector is a huge market. The group is a very big group, so it’s not as if this is a total change in strategy.” To send feedback, e-mail emma.rosser@eg.co.uk or tweet @EmmaARosser or @EGPropertyNews Picture © Lloyds Banking Group