UK Edition
This column has long been a fan of property investment trusts, so it has been troubling to see one of their number suffer a series of blows in recent months to the point that its shares have been suspended.
Mercifully we have never tipped the fund in question, Home Reit, but readers may be wondering if its problems are shared by other trusts, recommended by Questor, that invest in similar assets. We’ll investigate this now.
Home Reit owns residential properties, let to organisations such as charities and housing associations, that are used to house homeless people. But it has come under fire from short‑sellers and as a consequence its annual results are receiving extra scrutiny from its auditors.
This has led to a delay in publication and, as results have to be published by certain deadlines, the suspension of its shares. In its attempts to rebut the accusations of the short‑sellers it did not help itself by first stressing that it had suffered no rent arrears to the end of August, only to admit later to arrears in the subsequent period.
We can only hope that matters improve for Home Reit and that no readers own the shares, although one City professional expressed scepticism to this column about its chances of survival as a listed company.
Our more pressing concern is whether its troubles have implications for the residential property trusts we have tipped, namely Residential Secure Income and PRS Reit, while there are also some similarities between Home Reit and Triple Point Social Housing, another Questor pick.
PRS Reit is straightforward. It lets its properties directly to individual tenants, often families; there is no intermediary such as a housing association involved. This takes away the risk that problems with one tenant could jeopardise a significant portion of its rental income. Arrears remain low and its rents at about 25pc of household income, on average, should be affordable. This all gives us comfort that its own income is secure. Hold.
Residential Secure Income also lets mainly to individuals, although it is more complicated than PRS because it deals with three types of property: retirement housing, shared‑ownership homes, both of which involve direct letting to individuals, and local authority homes.
The latter business accounts for just 9pc of the portfolio and is being wound down as a proportion of the trust. So there is very little risk that problems with a single tenant could deliver a severe blow to the fund. Rental collection is excellent at 99pc and there is rental growth of 4.5pc. Hold.
Similarities with Home Reit are closer in the case of Triple Point Social Housing. Here too the trust’s tenants are organisations such as housing associations, which in the case of Triple Point house vulnerable people such as adults who need full‑time care. As with Home Reit, this means less diversification in sources of income than we have with PRS and Residential Secure Income.
On top of that, questions have been asked about the financial strength of its housing association tenants by the regulator of social housing, which is concerned about the long duration of the index‑linked rental agreements between the trusts and its tenants and about the latter’s financial strength.
One, My Space, has fallen into arrears with its rent and its future has to be in doubt. If that were not worrying enough, short‑sellers have attacked the other trust to invest in social housing, Civitas, although not Triple Point itself. As a result of these pressures its shares have been weak for some time and stand 38pc below where we first tipped them in 2019, while the discount is 51pc.
In this column’s view at the heart of the matter is the arcane‑sounding question of whether the ultimate tenants of Triple Point’s properties, the individuals who need care, qualify as “specialised supported housing” tenants, which allows a higher level of housing benefit to be paid. This ultimately supports the rent paid to the trust and its ability to pay its dividend – and the valuation of its assets.
The regulator has decided that most of My Space’s tenants do not meet the definition of specialised supported housing; the key question is whether the same applies to Triple Point’s other tenants. The trust’s Max Shenkman tells Questor he believes it does not.
On this basis its income should be largely secure (My Space accounts for 7.5pc of its assets, while a replacement tenant could be found). And the discount prices in an awful lot of bad news. Hold.
Questor says: hold
Tickers: PRSR, RESI, SOHO
Share prices at close: 84.8p, 80.8p, 54.7p
Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.
Read Questor’s rules of investment before you follow our tips