Interactive Investor

Investment trust appoints new manager to enact turnaround

23rd May 2023 11:14

by Sam Benstead from interactive investor

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With rent collection at just 13%, Home REIT has sacked its fund manager. Sam Benstead runs through the details. 

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Embattled investment trust Home REIT has appointed a new fund manager and disclosed further difficulties collecting rent from its property portfolio.

The investment trust, which owns social housing which it lets out to charities and housing associations, will now be managed by AEW UK Investment Management, a global real estate investment firm with £74.5 billion in assets.

AEW is the investment manager of AEW UK REIT, AEW UK Real Return Fund and AEW UK Core Plus Property Fund.

Alvarium Fund Managers, which has managed the trust since launch in 2020, has been removed from managing the trust.

Home REIT shares were suspended in January 2023 because it failed to publish its annual accounts after a hedge fund raised issues about property valuations and rent collection, and a law firm sought compensation for investors because it believed the investment trust had not followed its original investment theses.

Some charities it let to stopped paying rent, claiming that the properties were not fit for use.

The trust claimed to help alleviate homelessness in the UK while also giving investors inflation-protected income.

On 16 February 2023, the trust announced that, for the quarter ended 30 November 2022, only 23% of rent had been collected, meaning that out of a £14.8 million quarterly rent roll, only £3.4 million had been paid.

The trust has now disclosed that during the five months ended 30 April 2023, it collected a total of approximately £3.4 million, including sums in relation to rent arrears, from tenants. Rent demanded during the same period was £25.9 million, meaning that just 13.1% of rent had been collected.

Following the appointment of AEW, the board intends to sell a number of properties, as it works “to stabilise its property portfolio, provide additional liquidity and reduce its borrowings.”

For the first two years of management, AEW will be paid £3 million a year and receive bonuses for rent collecting and selling properties.

Then the new charge for the trust will be 0.75%, subject to a minimum fee of £3 million a year, increasing annually in line with inflation by a maximum of 5%.

The board points out this fee structure compares favourably to the c.£7 million payable to Alvarium Home REIT Advisors under the previous agreement.

Knight Frank, the property firm that Home REIT used to value its portfolio, has terminated its contract with the investment trust and will stop working with it in November.

Lynne Fennah, Chair of Home REIT, said: "The appointment of a new investment manager is an important step. AEW brings deep fund management and property expertise that will be critical in enabling the company to stabilise its property portfolio, maintain its mission of providing accommodation to vulnerable people and maximise value for shareholders.”

Stockbroker Numis pointed out that on the one hand the appointment of AEW is a chance for Home REIT to move forward.

It said: “We expect many shareholders will have been placing a large proportion of the blame for the company’s current challenges on the previous manager and therefore they will likely welcome the appointment of a new manager.”

However, Numis added it is “not aware of the manager having any experience in specialised supported housing (SSH) or the wider social housing sector.”

The analyst continued: “Given the complexity of the portfolio and the vulnerability of the underlying residents, we think some shareholders would have been expecting a manager with more experience in this regard.

“More importantly, AEW’s appointment does not immediately solve the significant challenges that the company is facing with less than 17% of rent collected for the eight months to the end of April and multiple tenants entering liquidation.

“Disposing of a select number of properties is clearly a near term priority for the Board, and the variable structure of the management fee should help ensure AEW is aligned with this objective.

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