SAF Housing continues testing phase

6 SEPTEMBER 2012

In preparation for the launch of the Houses4Homes Real Estate Investment Trust, SAF Housing has engaged in stress testing its model.

While we test our ability to deliver we have to turn our attention to supply issues not just for the time when we begin full operations but also for this initial stage.

For SAF Housing the key supply requirement is money. The challenge is split into 2 parts; the structured finance to deliver scale and the interim finance at a scale that allows us to fully test our systems by delivering a number of developments without leaving substantial sums we cannot service. The second challenge is logistical, to ensure that the right amount of money arrives at its required destination at the required times. In military procurement terms this is called "just in time procurement".

Just in time procurement can work for interim money supply if we use the correct part of our structured financial package at the correct time. The package is divided into two simple tranches; investor funds and borrowed funds.

We will raise investor funds when we are in a position to use them by the issue of stock. This is best done in large tranches against developed portfolios.

To fund the portfolio construction we intend to use the borrowing element. We are doing this based on a number of preconditions:

- We will be pushing the loan to value towards 100% with additional guarantees

- The development risk remains outside of the REIT

- The funds will be made available on a draw down basis, we do not pay until we use the cash

Of the three conditions the third is the most important. It allows expenditure to be controlled with precision, it avoids expensive costs associated with servicing cash and it allows development to dictate the pace rather than finance.

Our banking partners have responded positively and we have agreed the steps required to continue to provide funding for this very important phase in the development of the Houses4Homes REIT.