A new property venture aims to provide accommodation to homeless people and eventually provide an annual 7.5 per cent return to investors.
Home, a real estate investment trust which will float on the London Stock Exchange later this month, wants to raise £250million to acquire a portfolio of suitable property.
It plans to let accommodation on 20-30-year leases to charities, housing associations, and other regulated organisations that receive housing benefit from local or central government.
Vulnerable people: A charity estimates that there are over 320,000 people sleeping rough, in homeless shelters or other temporary housing
The initial public offering is open to ordinary investors, but they must be prepared to buy a minimum of £1,000 shares to get in at the outset later this month.
Home will target a minimum annual dividend of 5.5p per share starting from September 2021, and says this has the potential to grow through its ‘upward-only inflation-protected long-term lease agreements’.
It is also targeting a net total shareholder return of at least 7.5 per cent a year over the medium term.
Investing experts say it is an interesting offer. But one cautioned that people should not get distracted by the opportunity to help the homeless, and make sure the investment stacks up on its own merits.
Another felt that investors were being asked to make profits from the homeless. Read our round-up of responses and more about how investment trusts work below.
Home REIT will be managed by Alvarium Fund Managers, and advised by a team with previous experience in managing a £430million social impact fund.
The board is chaired by Lynne Fennah, the operations and finance boss of Empiric Student Property.
The company says it will seek to alleviate homelessness in the UK, and training and rehabilitation services will be offered within its accommodation to provide residents with skills and confidence and help them reintegrate into society.
Midas share tips: Triple Point Social Housing
Founded in 2015, Triple Point specialises in supported housing for people with special needs, such as autism, learning difficulties or physical impairments.
It plans to acquire accommodation for a range of people vulnerable to homelessness, including women fleeing domestic violence, people leaving prison, individuals with mental health, drug or alcohol problems, and young people leaving foster care.
Home expects to offer savings to local authorities and other bodies helping the homeless via lower rents, plus the long term security of tenure which it says is crucial to rehabilitation.
Alvarium Home REIT Advisors, the arm of Alvarium that is advising Home, adds that it is working with the charity Crisis to support it in ending homelessness.
Fennah says: ‘We believe a significant investment opportunity now exists in the UK homeless accommodation asset market.
‘The Alvarium team has already identified a substantial pipeline of homeless accommodation assets that we, and the Alvarium team, consider are at low and sustainable rent levels.
‘We aim to be part of the solution to the homelessness crisis in the UK, drawing on the Alvarium team’s sector specialist expertise to achieve our objective of delivering secure inflation-protected income and capital returns to shareholders, whilst delivering a positive social impact.’
Gareth Jones, partner at Alvarium Home REIT Advisors, says: ‘The national homelessness charity, Crisis, has described current levels of homelessness as a “national emergency” and Shelter estimates that there are over 320,000 people sleeping rough, in homeless shelters or other temporary housing in Great Britain, which has a significant impact on individuals as well as a wider social and economic cost.
‘Local housing authorities are under a statutory duty to secure accommodation for individuals who are unintentionally homeless and in priority need but current accommodation for the homeless is limited in quantum and often sub-standard and uneconomical.’
What is a REIT?
Real estate investment trusts, or ‘closed ended’ property investment trusts which hold properties, give investors exposure to commercial and other types of premises.
This can range from offices and shops to relatively niche sectors like health facilities or student accommodation.
Investment trusts are listed on the stock exchange, allowing investors to buy and sell shares which are constantly traded.
They therefore don’t suffer the same liquidity problem as ‘open ended’ property funds, which have unlimited shares that managers have to redeem on request.
All of the latter were suspended at the start of the Covid-19 crisis, and regulators are currently considering whether to start forcing investors to give property funds six months’ notice to make withdrawals.
‘REITS are good way to get exposure as investors can access their money at any time but it also means that the share price can be volatile,’ says Adrian Lowcock of Willis Owen.
Read more here about how investment trusts work.
What do investing experts say about Home REIT?
‘The REIT does look interesting and in the current climate a 5.5% income yield would be very attractive indeed,’ says Adrian Lowcock, chartered wealth manager and head of personal investing at Willis Owen,
‘The combination of doing good, in this instance by supporting the homeless, when investing is also something that appeals to a growing number of people but it is important not to get distracted by that side of the investment and make sure the investment stacks up on its own merits.
‘The rents should come indirectly from either the local council or government. So there is an element of sustainability and reliability in those incomes.
‘The leases are expected to be 20-30 years which gives some predictability in incomes from the investment and in addition rents are going to be inflation linked with upward only reviews.
‘Quality of tenants is always a concern as it can affect the value of the property and future incomes. However, the leases will incorporate a protection for investors in that full repairs will be covered.’
Lowcock says that overall this is an interesting product with laudable aims, but investors might only want to consider this as a small part of their property exposure.
He points out that it is a very niche investment into residential property, to which most people already have plenty of exposure.
‘The REIT structure is the right approach as it means the trust is never forced to sell an asset to meet investor demands,’ adds Lowcock. ‘But it also means that investors don’t have to rush to invest.’
‘They can watch the float and wait for the share price to settle down before investing. New launches are likely to have some upfront costs which could impact the share price in the short term as the trust builds up the portfolio of properties.’
Dzmitry Lipski, head of funds research at Interactive Investor, says: ‘We will be watching the potential launch with interest – it is good to see the investment trust sector stepping up to the plate on important issues that may also have been exacerbated during Covid-19.’
Dzmitry Lipski: ‘It is good to see the investment trust sector stepping up to the plate on important issues that may also have been exacerbated during Covid-19’
II operates a ‘long list’ of ethical funds, trusts and ETFs, and an ACE 30 rated list of ethical investments. And at the start of this year, it launched a DIY ethical portfolio aimed at those who want socially responsible investments.
Home REIT would need to go through II’s quantitative and qualitative screens and build a track record to be considered.
Lipski adds: ‘The investment management industry has an important role to play on governance, shaping how companies behave by engaging with senior management – and of course voting.
‘But it is arguably those investment companies investing in the fabric of society that can be really impactful and interesting for investors, and the investment trust sector has this in spades.
‘Aside from commercial property, the closed ended property investment trusts/ REITS cover a diversity of sectors, from student housing, healthcare, and social housing (whether that’s care homes or addressing homelessness).’
FundExpert.co.uk boss Brian Dennehy says: ‘My immediate instinct was that investors are being asked to make profits from the homeless. That just doesn’t sit well with me.
‘More generally, we will only see if there is a compelling investment opportunity once there is a track record across a range of issues – capital growth, income levels, and the impact of costs on the latter (property has high costs).
‘We would advise any clients to avoid this for now.’