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Chris Mills’ Harwood launches affordable property fund

12 September 2018

Veteran smaller company fund manager backs Multifamily Housing real estate investment trust aiming to consolidate and professionalise England’s regional rental property market.

Veteran smaller company fund manager Chris Mills is backing the launch of a real estate investment trust (Reit) aiming to consolidate and professionalise England’s fragmented rental property market.

Harwood Real Estate Asset Management, the four-year-old property arm of Mills’ Harwood Capital, is looking to raise £175 million from professional and private investors for the flotation of Multifamily Housing Reit this month.

Unlike the government-backed PRS Reit (PRSR) which listed last year and has raised £500 million to build new homes, Multifamily will buy existing rental properties from amateur buy-to-let landlords.

While this will not increase supply of new stock to ease the housing crisis, Multifamily will focus on affordable flats and homes outside London, an undersupplied part of the market it believes could do with professional management.

It also means the investment trust should start with income-producing private market rented residential (PRS) units to support quarterly dividends and a first-year yield of 4%. It aims to lift this to 5% in year two and raise pay-outs progressively in later years to achieve a total annual return for shareholders of at least 10%.

Jonathan Whittingham, chief executive of Harwood Real Estate, said: ‘This is a hugely exciting opportunity for investors, as we look to capitalise on the favourable supply-demand dynamics supporting investment into the PRS sector, an addressable market believed to be valued at over £900 billion, and build out the UK’s first significant built stock platform to meet the demands of renters for genuinely affordable, well-located accommodation.’

Multifamily says rents on its properties will range between £500 and £700 a month, equating to 30% of the median salary of 70% of the local populations it aims to serve. It claims this is cheaper than average one-bedroom build-to-rents which equal 46% of average incomes in the regions.

Multifamily wants to raise a minimum of £122.5 million to proceed. Upon admission to the stock exchange, it will buy a £70 million seed portfolio from Harwood Real Estate, comprising of 22 housing blocks with 658 flats in areas such as Bristol, Lowestoft and Derby.

The portfolio is 95% occupied with average tenancy lengths over 4.8 years. It generates £4.8 million in annual rental income and offers a gross yield of 7% before costs, according to the company.

Existing investors in the seed portfolio – who include some clients of Harwood Capital, which manages the North Atlantic Smaller Companies (NAS) and Oryx International Growth (OIG) investment trusts – will reinvest £19 million in the share offer.

The trust’s non-executive directors, who include former Aviva Investors chief investment officer David Lis, will subscribe for £250,000 of shares. Its chairman is Nick Jopling, former executive director of Grainger (GRI), the £1.2 billion listed property investment company.

Harwood Real Estate says its track record includes managing investments in over 2,450 homes and transactions in £490 million of residential properties. It has identified a £422 million pipeline of suitable properties to buy should the flotation proceed.

It will earn the equivalent of 1% of net assets a year, with a 0.5% annual management charge topped up 6% of rents. These fees will fall to 0.35% and 4% respectively as the fund grows.

A prospectus for the £1 per share offer will shortly be published. The offer to intermediaries and retail investors closes on 25 September. Peel Hunt is the corporate broker handling the issue.

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