Multifamily Housing REIT: Safe as houses?
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Mark Carney has recently warned that a chaotic no-deal Brexit could spark a collapse in house prices. But if you think the scaremongering has been overdone, there is a new investment trust that is going to invest in private rental accommodation. The Multifamily Housing REIT will buy pre-built properties that are already let out and once it is fully invested will target total net shareholder returns of 10% per annum.
Carney was referring to the latest Bank of England stress tests that are designed to assess whether the banking system could survive an extreme financial shock. It has been reported that his worst case scenario is that house prices could fall by as much as 35% over 3 years, although this seems highly improbable.
If you think that it is more likely that the property market will continue to offer decent returns, you might want to consider the new Multifamily Housing REIT, which is positioning itself as an alternative to buy-to-let. The private rental market has increased significantly in the last few years amid a fall in home ownership, but it is mostly still in the hands of non-professional landlords.
Main focus will be on one- and two-bedroom properties
The company intends to raise gross proceeds of £175 million and will use the cash to invest in properties that are already built and that are located largely in England, outside of Greater London, and let to private tenants at mid-market rents of around £500-£700 a month. Its main focus will be on one- and two-bedroom properties.
It has identified a seed portfolio that is comprised of 22 properties, most of which are low-rise blocks of apartments. These are located in areas such as Bristol, the West Midlands, East Anglia, Manchester and Leeds.
The buildings contain 658 separate homes as well as five commercial units and will be purchased for just over £70 million. They have an average occupancy rate of 95% and average tenancy length of 4.79 years. Multifamily Housing REIT has also identified a pipeline of similar homes with a total value of £422 million.
The fund plans to pay annualised dividends of around 4% for the period from admission to 31 March 2019. For the following financial year it will target quarterly dividends of 5% per annum and will aim to generate a net total shareholder return of 10% a year. If things go well the intention is to pay out a rising stream of income.
Highly experienced in the residential property market
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The Investment Adviser is Harwood Real Estate AM, which is part of Harwood Capital Management, a company that is highly experienced in the residential property market. It is also worth noting that the seed portfolio is currently managed by Harwood Real Estate, a real estate management platform that was formed in 2009 with the same management as the Investment Advisor. The total fees on the new fund will initially be equivalent to 1% of NAV.
If you are more interested in capital growth you might prefer the £54 million TM Home Investor fund. This was launched in July 2012 and invests in private rented sector housing across the mainland UK regions. The managers have built up a portfolio of 207 properties including flats, terraced houses, semis and detached.
It was previously called TM Hearthstone UK Residential Property and aims to capture UK house price growth, whilst also providing an element of income return. The fund has recently been awarded an Elite Rating by FundCalibre. Over the last five years it has generated a cumulative total return of 37% and is yielding 0.9%.
“Let out” ??
Unless you trousers are too tight and you are planning to get them altered I think that perhaps you mean “Let”