Out with the old, in with the new...

New Name, same philosophy

As some of you will know by now, Somerset Estates REIT Plc is sadly no more. In September last year we came to the tough decision that the future of the company was better placed becoming private and delisting from the stock market. We had three years of being a REIT, however, we failed to meet Condition D S528 CTA 2010 (no one shareholder can own more than 10% of the Company) therefore we were no longer able to continue as a REIT. We could obviously have remained a public company on The International Stock Exchange (TISE), but decided that the extra expense and scrutiny of being a public company was not the way forward for the business. In this blog I will try and explain why it did not work out for Somerset Estates REIT Plc and what the future holds.

First things first, I remain a strong believer in both the REIT structure and the UK residential property investment market. A REIT structure enables tax efficient, indirect investment into property whilst enabling the business to raise equity on the public markets. The past 12 months have shown how resilient the UK residential property market is, with prices at all time highs despite the wider issues in the economy. I am very excited about the future of the UK residential investment market, the continued professionalisation of the industry, and increase in build to rent developments can only benefit tenants and investors alike. It is a huge market (c£1.4 trillion) and is ripe for consolidation, unfortunately Somerset Estates was not able to do so…for the time being at least anyway!

1) Timing

Somerset Estates Ltd became Somerset Estates REIT Plc in December 2017. The aim was to provide an exit strategy for buy to let landlords who would be facing increased tax bills and ever more regulation (I do think some regulation is a good thing, however, it can quickly get too much for an “amateur” landlord). We would do this by purchasing their properties with shares in the REIT rather than for cash, or a combination. This would allow landlords to retain a property income (now from a much larger portfolio) but not have to worry about property management and increasing taxes. The whole ethos behind REITs is that they allow indirect investment into property, and this is what we were seeking to provide to the UK’s army of buy to let landlords.

We had thought that launching just before the Section 24 tax rises came in would allow us to educate landlords and carry out some transactions before the full impact would be felt. However, what we found was that many landlords simply did not know about the tax and regulation changes facing them. We spent a lot of time educating landlords about these changes and many simply decided to bury their heads in the sand and hope the issue would go away or followed advice that they believed would help them avoid these tax changes even though this could potentially cost them more than simply paying the extra tax. (Plot spoiler: unfortunately the increased taxes are very hard to avoid).

Obviously, we were pitching a new concept to buy to let landlords and I am not sure that we managed to convince some of those we spoke to that is was not a scam! I think the potential to save on capital gains tax and the new Section 24 tax rises was seen as maybe too good to be true.

I do believe that if we had waited until the new tax rises had been fully implemented we may have had more traction and been able to attract more landlords.

2) Did not line up investors / landlords prior to listing

The time and effort it took to become a public company and a REIT left little room to line up landlords and investors prior to listing. At the time I wrongly felt becoming a REIT was the be all and end all and the landlords / investors would come knocking once we had achieved REIT status. Clearly I was wrong!

3) TT took on too much and did not enough experience

I am happy to admit that I tried to take on too much and did not live up to what I challenged myself to do. I did not have any experience in running a public company as well as trying to grow the business. We did have great advisors who helped immensely and our Chairman and Non-Executive Director were always on hand for advice and guidance, however, at times I was a bit overwhelmed and it would have been very helpful to have a full time team to help out.

4) Close to a deal

Once it was clear the landlord route would not work, we decided to change tack and find a JV partner to help the business grow and attract investors. This would be a fresh start and make use of the REIT status. We met with a few potential partners and decided to work on a deal with a well known and long established business. The idea would be to use a research led approach to identify suitable areas to purchase single family homes in the South and South East. Funds would then be raised to bulk purchase new build properties directly from developers. We spent around 6 months working with the partner to build a pipeline of deals and lay out exactly how it would work. However, at the last minute the plug was pulled as they decided that they wanted full control of the business. This was obviously a non-starter for us.

5) Covid - Final nail in the coffin

Not much more to add that has not already been written regarding Covid...apart from I do hope you and your loved ones have not been impacted

Next time round…

If (when?) we go through the listing / REIT process again the lessons learnt from this process will be priceless. I will ensure that we have a strong team with investors and investments lined up and ready to go.

The Future - 10Ant Capital

Having delisted and reverted to a private company, we decided that a new name would enable the Company to have a clean break. Therefore, I am delighted to introduce 10Ant Capital Ltd.

The new business will obviously be very similar, however, we are also looking to expand our investment strategy into the tech world, specifically proptech. We feel that we can offer both investment and our property expertise as well as the opportunity to trial suitable products on our existing portfolio. We also have access to tech, sales & marketing specialists as well as market-leading fin/proptech recruiters.

Please do get in touch with any interesting property / tech investments!