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Home REIT rebuffs short seller

Home REIT has responded to short seller allegations last week that saw its share price fall more than 20%.

The company said it was “completely confident in the integrity of the business it is operating, its financial soundness and the beneficial impact the Company is having in reducing homelessness in the UK”.

Allegation 1

In a report published last Wednesday, Viceroy alleged that the company’s tenants “do not appear to be paying rent”, “substantial quantities of Home REIT’s rent will never be collected,” and therefore “[this] is likely…to [result in] substantial downwards revaluations of its investment properties”.

In response Home REIT said its rent was ultimately supported by central government funding and Local Authorities’ statutory duty to house homeless people. There are no overdue arrears in relation to amounts billed to 31 August 2022, supporting the independent valuations of the company’s portfolio carried out by Knight Frank.

Tenant

Area

Focus

Beds

Exposure (by rent)

Invoiced rent

Cash received

Rent free

Arrears

Average Tenant rent (pw)

Lotus Sanctuary

Midlands

2

939

12.2%

£3.7m

£3.7m

Nil

Nil

£136

Supportive Homes CIC

NW

1

1,020

10.4%

£3.0m

£3.0m

Nil

Nil

£106

Redemption Project CIC

Midlands

1+2

890

9.1%

£2.7m

£2.7m

Nil

Nil

£106

Big Help Project

NW

1+3

1,253

9.1%

£3.9m

£3.9m

Nil

Nil

£75

One CIC

NW

1+3+4

808

8.3%1

£3.0m

£3.0m

Nil

Nil

£106

Gen Liv UK CIC

NW

1+2

571

6.3%

£3.0m

£3.0m

Nil

Nil

£114

Bloom Social Housing CIC

SW

1

637

5.3%

£2.0m

£2.0m

Nil

Nil

£86

CG Community Council

SE

1+3

386

5.0%

£2.4m

£2.4m

Nil

Nil

£134

Dovecot & Princess Drive Community Association

NW

1+3+5

396

4.5%

£2.0m

£2.0m

Nil

Nil

£117

Noble Tree

London

1

527

4.5%

£1.6m

£1.6m

Nil

Nil

£88

LTG Vision CIC

NW

1

646

4.0%

£1.1m

£1.1m

Nil

Nil

£65

Dawson Housing Limited

SW

1

397

3.4%

 

£1.8m

£1.8m

Nil

Nil

£88

Circle Housing and Support CIC

EE

1

451

2.6%

£1.4m

£1.4m

Nil

Nil

£61

Ashwood Housing Solutions CIC

EE

1

415

2.6%

£0.4m

£0.4m

Nil

Nil

£65

Complete Homes NW CIC

NW

1+2

214

2.2%

£0.3m

£0.3m

Nil

Nil

£105

Eden Safe Homes CIC

WM

1+2

280

2.2%

£0.5m

£0.5m

Nil

Nil

£80

Mansit Housing CIC

London

1

234

1.4%

£0.5m

£0.5m

Nil

Nil

£80

Serenity Support CIC

London

1+2

96

1.2%

£0.7m

£0.7m

Nil

Nil

£133

Lifeline (NW) CIC

NW

1+3

131

1.2%

£0.4m

£0.4m

Nil

Nil

£95

N-Trust Homes CIC

NW

1

113

1.1%

£0.6m

£0.3m

£0.3m

Nil

£97

Marigold Housing

EM

1

72

0.7%

£0.2m

£0.2m

Nil

Nil

£96

Midland Living CIC

WM

1

55

0.6%

£0.3m

£0.3m

Nil

Nil

£119

ICDE Homes CIC

WM

1

85

0.6%

£0.3m

£0.1m

£0.2m

Nil

£71

Select Social Housing CIC

NW

1

73

0.5%

£0.3m

£0.2m

£0.1m

Nil

£71

Elemel CIC

SW

1

33

0.4%

£0.1m

£0.1m

Nil

Nil

£125

Care and Community Foundation CIC

NW

1

36

0.3%

£0.2m

£0.2m

Nil

Nil

£95

New Beginnings CIC

NW

1

44

0.3%

£0.1m

£0.1m

Nil

Nil

£70

Ready 4 Home CIC

NW

3

15

0.1%

£0.1m

£0.1m

Nil

Nil

£80

Total

 

 

10,817

100%

£36.6m

£36.0m

£0.6m

Nil

Allegaton 2

Viceroy queried the company’s financials and questioned the use of straight-line rent revenue.

In response, the company said it was obliged, under IFRS accounting standards, to straight-line its rental income. The company’s half year report presents an adjusted cash earnings figure to provide complete transparency over the impact of the straight-lining adjustment. As a result, the suggestions that the company has poor cash conversion are incorrect.

Allegation 3

The “financial data of Home REIT’s tenants show that many cannot afford rent, have not been paying rent, are in administration, are run by bad actors, or simply do not provide social housing services.”

Home REIT’s reponse: “All of the company’s tenants provide social housing services. The company has addressed each of Viceroy’s accusations on a tenant-by-tenant basis. The company reiterates that there are no overdue arrears in relation to amounts billed to 31 August 2022. The investment adviser’s due diligence exercises are adapted to each tenant but include confirming the tenant’s legal qualification to receive exempt housing benefit, in addition to reviewing financial statements, operational capabilities (for example staffing levels) and their business plan/forecasts, such that the tenants can meet their rent payment obligations as they fall due. The company takes any accusation against the conduct of directors/trustees of its tenants seriously and would investigate any suspected wrongdoing, if required.”

Allegation 4

The company’s investment adviser, Alvarium Home REIT Advisors Limited, fee structure is poorly aligned with shareholder interests and perfectly aligned to commit fraud.

In response the company said: “External management is a common feature of the UK listed investment trust and REIT market. Home REIT has one of the lowest external management fees in the UK REIT space with an effective rate of 0.79% on NAV as at 31 August 2022 and no performance fee, which has incentivised the on-target delivery of all its KPIs. Home REIT’s NAV is calculated by the company’s administrator, Apex Fund and Corporate Services (UK) Limited, using the latest available independent valuations provided by Knight Frank. Each of Apex, Knight Frank and BDO LLP are independent of the investment adviser. There is therefore no “alignment” whatsoever for fraud in the investment adviser’s fee structure; on the contrary – it is designed to prevent fraud.”

Allegation 5

“Alvarium have systematically inflated the prices of properties on the balance sheet.”

In response, the company said: “The total revaluation gain for properties purchased by the company between IPO and 28 February 2022 is £43.2m, which equates to an average of 6.4% per property. This revaluation gain was established by the external valuation process undertaken by Knight Frank as per the RICS Valuation. As the company explains in detail below, the statements made by Viceroy misunderstand the process by which the company acquires its assets, misinterprets figures derived from underlying SPVs and relies on misleading HM Land Registry data.

One of the most serious allegations made by Viceroy was that the company purchases property at vastly inflated prices, outlining two examples of portfolio acquisitions where one of the properties in the portfolio was listed on the Land Registry data at a vastly higher price than one would expect. Viceroy insinuated that this was an effort by the manager to boost NAV and therefore management fees. Effectively alleging fraud.

The company said: “This assertion is based on a misunderstanding of the process by which the company acquires its assets and how these are registered at HM Land Registry. The company typically acquires portfolios of properties from vendors. When the company purchases a portfolio of properties not held in a corporate wrapper, in advance of the sale the vendor will often first transfer the properties into a special purpose vehicle (SPV) so they are held in a corporate wrapper. This corporate SPV and the properties held within it are then acquired all together as a portfolio by the company, hence there are often two transfers of each property recorded with the Land Registry.

When a transaction involving the transfer of a portfolio of properties is registered with the Land Registry, the Land Registry records the transfer of ownership on the title for each individual property, but it does not record a “price paid entry” for each individual property where there are no apportioned prices set out in the portfolio transfer.

The Land Registry’s processes for registering portfolio acquisitions are quite complicated but in essence the price paid for the whole portfolio (including the two transactions flagged by Viceroy) is recorded in the Price Paid Dataset against a single property in the portfolio (so for example, if the company has purchased an SPV containing 10 properties each valued at £100,000, the Price Paid Dataset shows the total £1m consideration against a single property in the portfolio).

Home REIT said that it acknowledges that the Price Paid Dataset can be misleading.

It added: “Home REIT and the Investment Adviser are both incentivised to pay as low a net purchase price as possible for the company’s properties, hence the Ccmpany acquires portfolios of properties off-market from vendors. A lower purchase price enhances the potential return provided by the asset, thereby supporting the company’s return targets, NAV and dividend. Purchasing properties at inflated prices, on the other hand, would not make commercial sense. Additionally, noting that properties are independently valued, from the Investment Adviser’s perspective, overpaying for properties which are then re-valued downwards would result in poor performance for the company, which would not reflect well on the Investment Adviser.”

[QD comment: It is clear to see that Viceroy was either deliberately misleading in its allegations or misunderstood the process (or both). Home REIT has comprehensively rebuffed Viceroy’s allegations one by one, although questions still persist over the strength of some of the group’s tenants. It is only a shame that Viceroy would have made a lot of money on a baseless attack and ultimately using the vulnerbale people that use the properties owned by Home REIT as a pawn. Hopefully Home REIT’s shares will bounce back to the level of last week, but unfortunately it will probably take some time.]

HOME : Home REIT rebuffs short seller

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