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Why Beds-For-Rent's Super-Strong Covenant Is The Homeless


Which beds-for-rent sector offers a super-strong government-backed covenant and 100% rent collection?

The answer: Affordable housing for the homeless, which is why Home REIT, which has gobbled the £360M proceeds of its last fundraising and debt effort in just 10 months, is prepping a second equity fundraising.

With the war chest empty, and a strong pipeline of new development prospects in view, Home, which funds the acquisition and creation of high-quality housing for the homeless, said it expects to act rapidly if it goes ahead.

Proceeds of the new fundraising would be deployed rapidly after the equity issue, perhaps within three to six months, the company said in a regulatory statement.

Home’s prospects have been buoyed by a strong pandemic performance: Rent collection rates remained at 100% on its 643 properties, let to registered charities, housing associations and community interest companies. The properties have 3,700 individual occupiers.

All the rent payable by Home REIT's tenants is funded by support from local and central government. The homes are let or pre-let on very long leases, typically 20 to 30 years, containing inflation-linked or fixed-uplift rent reviews. In today's market, that is the investors' holy grail.

Home’s move comes as investors buy heavily into the affordable end of the burgeoning beds-for-rent sector.

Last month Legal & General Affordable Homes bought its largest single scheme to date, taking 207 new affordable homes at part of Ballymore’s Royal Wharf regeneration scheme in east London. Legal & General Affordable Homes’ development pipeline now stands at more than 6,000 homes across the UK, with 1,000 homes currently in operation. The business estimates its portfolio has a gross asset value of more than £1B.

L&G has been joined by names such as Patron Capital, and Abu Dhabi's ADIA sovereign wealth fund has also pivoted toward affordable housing.

The appeal is long-term stable income and so-called 'granularity' meaning a wide pool of tenants, and thus less risk. Research by Savills published in 2019  showed the sector's liability-matching return characteristics and potential for growth.

At its IPO in October 2020, Home raised gross proceeds of £240M, and soon after secured a £120M debt facility from Scottish Widows.

Home has now invested £300M of the £360M it raised late last year, with the remaining £60M committed.

Around a quarter of the Home portfolio is in London and the south east with roughly 11% in each of the north west and West Midlands.