AEW Europe CEO Rob Wilkinson (pictured) says he is pleased with the progress the firm has made so far in turning around Home Reit, 10 months after the firm took over as investment manager.
AEW UK was named investment manager of the social housing trust in May 2023, replacing Alvarium following a period which saw the collapse of the trust’s rent roll and the suspension of its shares.
The trust is currently under investigation by the Financial Conduct Authority, while earlier this month the Home Reit board said it intends to bring legal proceedings against the parties it considers responsible for wrongdoing which predates AEW’s appointment.
“It was very clear early on in our due diligence phase of the process of potentially taking it on – we did an awful lot of thinking and analysing internally, right up to a very senior level in the organisation – that there are risks in the portfolio and there are risks in the financing,” he tells Portfolio Adviser. “We don’t really see this as a risk for AEW, unless we do a bad job.
“Ultimately it’s been well chronicled how wrong it’s gone. I don’t think the market thinks that’s our fault – and I hope not – because we weren’t there when it happened. We were comfortable and were clear with the board that our responsibility was to take it forward, not look back.”
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After taking over as investment manager, AEW launched a stabilisation process which has seen 394 properties sold since September 2023 for a total £74.6m.
A further 253 sales have been exchanged but not completed, as of the end of February, while borrowings have been reduced to £149.1m from £220m. Wilkinson says that the process is halfway through.
“There has been a lot of press announcements around the sale of assets for X per cent of its valuation and acquisition price. It was pretty clear to us that these properties were not worth what they were supposed to be worth.
“That was very obvious from the start, and we’ve been gradually selling off and taking back possession of assets where the CICs are not paying the rent.
“The big focus is in repaying the debt position, that’s what our priority is, and we’re making very good progress.”
He adds: “We’re about halfway through that journey, and I can tell you that I’ve never seen the team working as hard as I’ve seen them work on this. It’s quite remarkable – evenings and weekends, they’re non-stop on it. I’m pleased, but I know there’s a lot to do.”
Looking ahead, the firm is keen to continue utilising its expertise in social housing.
“I think there is a clear place for this kind of real estate in investors’ portfolios, but it’s got to be done in the right way. We feel that this is a portfolio that you can work through to create something that would look like that.
“We need to get through this banking debt situation, and then we need to have a conversation with the existing investors as to what their vision is going forward.”
“We have a huge amount of expertise and knowledge of this market. The one thing we must do is use that going forward. Is it with this or is it with something else? That remains to be seen, but focus at the moment is on solving the problem we have in front of us.”
AEW UK Reit
The firm, which is responsible for approximately £67.8bn of assets globally, also manages the £140m AEW UK Reit.
The trust is the best-performing UK Commercial Property Reit over the past three and five years, according to FE Fundinfo data.
Wilkinson says the UK has been AEW’s favoured country in Europe for the past two years.
He explains that following the mini-budget crisis in 2022, the UK real estate market underwent a significant re-pricing after it fell by around 20% in the final quarter of the year.
“Other markets like France and Germany have not fallen as quickly, so the UK repriced. The UK market, post Brexit, did not see the same run up that you saw in some other markets. Places like Paris, Munich, Berlin, the markets there in terms of pricing got extremely hot. And we didn’t quite see the same phenomenon happening in the UK.”
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He adds: “We are now looking to proactively invest more into the UK and we’ve got deals that we’re looking at now because we feel that we are accessing it at a nice pricing point because [valuations have] come off so much.
“But also, we’re looking at situations where we think there are options to create further value, whether it’s extending a building or renovating or whether it is additional land you can develop.
“And the reason for that is we think that the economy will start to come back. So if you go in at a good pricing point, and you have that optionality, that’s what we like. That’s very much consistent with the approach we have on our UK Reit, as well as our core funds.”
