MIDAS SHARE TIPS: Real estate investment trust Home Reit

More than 300,000 people are homeless in the UK, according to the charity Shelter. The numbers have risen sharply over the past year, the social impact is pernicious and the economic effect is dire.

Local authorities have a statutory duty to try to find accommodation for anyone who is homeless or at risk of losing their home. But their options are limited and properties are often both substandard and costly, so they end up spending £1.1billion a year on temporary lodgings in England alone.

Home Reit is a real estate investment trust that aims to help in this crisis, providing purpose-built or refurbished properties where rents are substantially cheaper than current alternatives. 

Home rents range from £60 to £85 a week in properties specifically designed to accommodate the homeless. By contrast, emergency B&B accommodation, on which English councils spent £344million last year, typically costs up to £250 a week.

Tenancy is secure and residents are offered training and rehabilitation to acquire the skills and confidence to secure a better future.

Home Reit is scheduled to float on the stock market on October 12 and investors can subscribe for shares until this coming Tuesday.

The offer is compelling. Shares are priced at £1, with a minimum subscription of £500. The group hopes to raise £250million and is targeting a 5.5p annual dividend from September next year, payable quarterly. That puts the stock on a yield of 5.5 per cent, with management looking for a total return, including capital gains, of about 7.5 per cent a year.

The targets are attractive in a world where savings rates are virtually non-existent and too many firms – including several in the property sector – have cut or abandoned dividend payments.

Home Reit is in a different situation. Local authorities pay homeless people’s rents and can reclaim most of the money from the Department for Work and Pensions, so Home Reit’s income is Government-backed and leases are typically 20 to 30 years in duration.

The trust will be run by Alvarium, an investment firm that manages money for wealthy families. The group already runs a £430million private fund for those investors, with 620 properties for the homeless.

Home Reit will be headed by social housing specialists Jamie Beale and Gareth Jones, who have spent decades in the property market. They have identified £350million of land and properties on which to spend the flotation proceeds within six to nine months.

Some properties will be built from scratch, with Home Reit providing funds upfront once planning permission is granted and tenants are secured.

Home Reit has set up an agreement with the charity Crisis

Other sites will be refurbished hotels, offices and other buildings, an increasing number of which are likely to come vacant as the coronavirus pandemic alters the way people work and travel.

Home Reit has also set up an agreement with the charity Crisis, providing financial support and gaining advice about where best to build new homes. All of Home Reit’s sites will be low-rise, well located and with a focus on genuine care.

Homeless people are rarely homeless by choice. They can be victims of domestic abuse, young adults formerly in foster care, ex-offenders, drug addicts or just families fallen on hard times. They are far more likely to be able to move on if the causes of their homelessness are addressed, rather than just the symptoms.

Home Reit is even determined to burnish its environmental credentials, with a commitment to improve properties’ carbon footprint by reducing energy and water use and encouraging recycling.

There are plans to increase the size of the fund to about £1billion but the group will add new assets to its portfolio gradually and only after ensuring that the need is there and tenants will be found.

Midas verdict: In an ideal world, homelessness would not exist. Unfortunately, numbers are rising and the Government cannot solve the crisis alone. Home Reit has been set up to help, giving homeless people the chance of a better life and saving local authorities hundreds of millions of pounds a year. Shareholders, meanwhile, are set to enjoy generous dividends and the promise of capital growth. A genuinely worthwhile investment.

To be traded on: Main market Ticker: HOME Contact: homereituk.com or Alvarium on 020 3941 6305