Home REIT is making an impact on the UK’s homeless, as well as delivering returns for investors. By Nicol Dynes & Richard Betts.
From zero to hero in a year. That sums up the story so far for Home REIT, an investor in housing with a mission to tackle homelessness. Since launching a successful IPO in October 2020, raising £240 million, the company has created over 3,800 beds for vulnerable individuals in need of housing across more than 700 properties. It is targeting 5.5 pps dividend and 7.5% pa total net return whilst proving that investments with a genuine social impact can deliver a sustainable return.
In September Home REIT raised a further £350 million for additional investment into suitable accommodation for homeless people in the UK. It had targeted £262 million, but the share issue was vastly oversubscribed. The investment trust has a significant and active pipeline of acquisition opportunities as it looks to increase its capacity and deliver inflation-protected income and capital growth.
Real Asset Impact asked Jamie Beale, partner & fund manager; and Charlotte Fletcher, partner & head of transactions at Alvarium Home REIT Advisors, how they have come this far and what the prospects are for the year ahead.
What is the overall strategy of the business and has it changed at all because of the pandemic?
CF: We launched the fund to tackle and alleviate the homeless problem in the UK by providing good quality long-term accommodation to house vulnerable individuals in need of housing. Our strategy has not changed as a result of Covid because, unfortunately, the problem is only getting worse. The homeless forecasts following the ending of the furlough scheme has ended and winding down of other protection schemes put in place during the pandemic are really concerning.
We are pleased that the results of our fundraising will help us to do more to address a worsening problem.
What has the IPO given you the ability to do and how do you know how that investment is being used?
CF: Since IPO we have created over 3,800 beds for vulnerable individuals in need of housing across more than 700 properties, providing new supply of good quality accommodation. We deployed all of the equity raised at IPO within the first five months and we are confident we will deploy the proceeds of our further fund raise in similarly short order.
The investment enables us to create good-quality accommodation which is let to charities and community interest companies who specialise in providing accommodation to homeless people. The state of the housing offered to homeless individuals is staggering, many people are in temporary accommodation, B&Bs and slum landlord housing.
‘There is a huge number of existing supply which isn’t fit for purpose – there’s something immensely satisfying about repurposing a building which is already in existence.’
Charlotte Fletcher, Home REIT
We’re trying to break the repeat cycle of homelessness by creating good-quality properties and giving charities the ability to have a guaranteed long-term security of tenure, which has previously been challenging for them as they haven’t been able to get long leases on residential properties.
With the quality of accommodation we provide, our charity partners are able to genuinely deliver an impact by giving the individuals living there the skills and the confidence they need to eventually live independently. It’s a pretty simple strategy that is underpinned by the Homelessness Reduction Act which came into force in 2018. That was the catalyst for us beginning to think about this model and strategy because it created a true legal and social framework and clear commitment to address the homelessness problem in the UK.
How does the partnership with local authorities work?
JB: Diversification is key for the fund, whether geographically, the actual bricks and mortar, the local authorities or the tenants. We are demand-led so we have relationships with the charities and the local authorities and we explore what the demand is on the ground – are they looking after women fleeing abusive relationships or people leaving the armed services or prison or drug and alcohol issues and so on?
Every local authority, every borough, big or small, has its own homelessness issue. So, for example, when we provide the housing for vulnerable women they’re almost always in secure apartments; when we’re providing housing for people leaving the armed services or prison they’re almost always in small three -or four-bed houses to avoid a sense of loneliness and isolation.
There’s always a clear rationale and logic behind the bricks and mortar that’s delivered. The local authority conversations are growing all the time. By the time we deploy the proceeds that we’ve recently raised I expect that we will be working with well over 130-140 different local authorities so it’s continuing to grow as the demand grows. Local authorities are desperate to get people out of expensive short-term housing and into better and more cost-efficient longer-term housing.
The number of rough sleepers identified across England has increased by 52% since 2010 (Adobe Stock/flik47)
Are you opting for repurposing rather than new build?
CF: We may look to invest in new builds but there is a huge number of existing supply which isn’t fit for purpose; really run down residential properties that are empty or defunct pubs, care homes, guest houses and B&Bs that we convert and refurbish. There’s something immensely satisfying about repurposing a building which is already in existence.
Typically we invest in really central locations, so all of our properties are within 200m of the nearest public transport hubs and that is essential to give the residents access to good transport connections and the local community.
Are more institutional investors looking at this area because it’s purpose-driven and it has a social impact?
CF: ESG investing is definitely on the rise; it’s important to a number of investors. What this fund offers is the ability to provide genuine and tangible social impact. It delivers on the ‘S’ in ESG in particular. But, equally, the fund provides long-term, secure income which, itself, is also important to investors. It is the blend of the two which makes the area particularly attractive.
JB: If you can deliver the security of income, as we do here, underpinned by a robust bricks and mortar portfolio, but you also are making social impact a priority, then there is definitely a huge weight of capital for that type of product. If you’re purely looking at financial returns and you’re ignoring the ESG elements you will arguably struggle and if you only focus on the ESG elements you may also struggle. It’s important to find a balance.
‘Every local authority has its own homeless issue and we will have those conversations and acquire property which meets that demand.’
Jamie Beale, Home REIT
Are the investors mainly from the UK or is there institutional capital from overseas?
JB: It’s mainly UK money. We do have some US and European institutions involved, but it’s predominantly UK investors. On a very positive note, we have some significant local authority pension fund money in Home REIT, which is very encouraging for us as we work with local authorities to provide a cost-efficient solution to homelessness in their boroughs. We also have the retail community and their investment has been very strong and I think the ESG element is a key reason.
As you said the homelessness problem is set to get worse. Will you need to grow to continue helping to resolve the situation?
CF: At the IPO we said that we expected to grow to around £1 billion in the first three years and we still think that is achievable. Obviously we’re very keen to have as much impact as we can in terms of alleviating homelessness as the problem is vast, but we also have to be prudent and grow in a sustainable way.
JB: Rent across our portfolio is around £90 a week. Compare that to the average private rent in the UK, which is over £160, and compare that to the average UK social housing rent that is around £108 a week, so we’re even more cost efficient and better value than social housing rent. That is one of our main drivers: providing good-quality long-term homes for vulnerable people, but also at the lowest and most sustainable rent level in the market.
UK homelessness in numbers
- Recent figures published by the Ministry of Housing, Communities & Local Government show that local authorities in England owed a statutory duty to prevent or relieve homelessness to more than 288,000 households in England between Q2 2019 and Q2 2020. These figures are 15% higher than the year before.
- In Q4 2020, the homeless charity Crisis estimated that 1 in 185 people in England were living without a home.
- The number of rough sleepers identified across England has increased by 52% since 2010, with an estimated 2,688 people sleeping on the streets on a single night in Q3 2020.
- Analysis published by Shelter reveals that local authorities across England spent over £1bn on temporary accommodation (such as hostels, bed and breakfast hotels and private rentals) in 2018-19.
- Since the IPO in October 2020 Home REIT has created nearly 4,000 new beds for the homeless, over 700 properties across over 80 local authorities. After the recent £350 million capital raising, Home REIT expects to grow its network to 140 local authorities.