Walls & Futures REIT to utilise development edge in larger projects

The value of its investment portfolio rose by 9% in the year to March
Old person

Joe McTaggart, chief executive of ethical housing trust Walls & Futures REIT Plc's (LON:WAFR) believes the development element to its projects gives it an edge over its rivals.

W&F does not buy portfolios of properties, but develops itself, which has a number of advantages, he says.

’œIf you buy a development portfolio with a yield you tend to pay a premium for it,’ and that restricts flexibility going forward.

Through its own development, W&F can generate a profit, which protects and increases net asset value.

W&F is also in control of costs, so rather than pay :£1mln for a property it can acquire for :£650,000 something that also allows it to be more competitive on the rents it charges.

The value of its investment portfolio rose by 9% in the year to March.

Profits over the year were :£45,400 with shareholders funds rising to :£3.25mln from :£2.98mln.

On a per share basis, net assets rose to 92p from 90p.

Different from social housing

The NEX-listed group completed its first supported accommodation development at a property in Stroud in the Cotswolds housing six people with learning and physical disabilities.

Walls doesn't provide care, just the properties, which are then taken on by a local authority, housing association or charity.

McTaggart says there are significant differences between Walls and other larger social housing REITs, which are designed solely to generate income.

Walls wants to deliver something more says McTaggart.

’œSocial housing looks like a fantastic income stream over 25 years, ’œ he says, ’œbut the housing association or authority has to be able to afford the rent otherwise it won't work.

’œWe will give them a better deal as we can use the developer margin to lower the rent.’

Impact company of the year

That attitude is one reason why the group won 'Impact Company of the Year' at the 2018 NEX Exchange Small Cap Awards.

So far, W&F has focused on small supported housing projects between :£400,000 - :£1mln, but the aim is to up the ante with larger projects going forward.

McTaggart want to increase the size to projects of between 7-12 units, which take longer to build and cost more but the potential development profit will be larger.

Extra care option

Eventually, he sees projects in extra care ’’œ for example elderly people who need some assistance but not to be looked after full-time.

These are much larger projects at between 48-200 units, take 2-3 years to build and can cost between :£10-30mln.

Until then, the focus will be on putting together small deals, or keep to jabbing as McTaggart describes it with the knock-out punch of a big project coming in behind.