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[74tom] 24/11/2022 20:53

Plymouth portfolio, EPC’s checked for 27 of 28 properties (1 has an incorrect postcode)

3x C rating
21x D rating
3x E rating

If all had been refurbished surely there would be at least some evidence?

Given the change in EPC law coming from 2025 this is surely another red flag…

[spectoacc] 24/11/2022 19:40

Just to be clear on the multi-million pound single property valuations - it will be for all the properties in that particular purchase. Land Reg will describe it as "..For this and other titles..".

So agree that's not relevant, whatever VR claims.

Relevant is the gap between purchase price by previous co, and what HOME paid. Relevant is who owns the previous co and reaps the benefit. Relevant is lease security and likelihood of rent being paid for the duration. Relevant is who is behind the operating co's - is it a CSH-style fiddle.

Considering the first answer is so simple, can only think HOME may be struggling with some of the later responses.

[74tom] 24/11/2022 19:07

Great idea William...

Let's go through the Peterlee portfolio from P24 of the short report, which helpfully has full addresses for the properties

1. 13 Argent Street, Easington Colliery;

Certificate expired in October 2020...

2. 17 Jesmond Road, Hartlepool;

Certificate was renewed last month on 22/10/22, EPC rating D...


3. 24 Ninth Street, Peterlee;

Certificate expired in April 2020 having previously been rated F...


4. 51 Eleventh Street, Peterlee;

Certificate valid until 2025, rating D

5. 57 Seventh Steet, Harden;

Certificate valid until September 2029, rating C

6. 94 Third Street, Harden;

Certificate renewed in September 2021, rating D

7. 21 Eleventh Street, Harden;

Certificate renewed August 2020, rating D

8. 96 Seventh Street, Peterlee;

Certificate renewed August 2020, rating D

9. 6 Twelvth Steet, Peterlee;

Certificate renewed May 2020, rating D

10. 44 Rydal Street, Harlepool;

Certificate renewed September 2020, rating D

So we have 1x C, 7x D and 2x expired...

And remember these properties were apparently purchased for £326k in October 2020 and then sold to Home REIT for £848k a year later...

Onto the Plymouth Portfolio...

[nexusltd] 24/11/2022 18:39

I have this suspicion. I'll run it past this BB and see if it has legs. My understanding is that HOME buy the properties as job lots, i.e., 5-20 assets in a single transaction from a single vendor. When HOME makes the RNS announcement after the property purchase, this line is always present; " Each Property is immediately income producing . . . .".

Is it possible that all the work and relevant costs to refurb the assets are contracted to the vendor, so that they all pass to HOME fully refurbished?

Is it possible that the refurb costs for all the properties are loaded onto a single property, perhaps this accounting simplification makes sense to them, though evidently it is far from transparent?

Frankly I would be far more concerned about the quality of leases than the odd few mn in a portfolio of 700+mn.

Edit: Regarding EPC's, an excellent point. If we know the address of a property, I believe that the EPC is public domain and can be downloaded.

[bozzy_s] 24/11/2022 18:08

If they really paid £11.6m for a terraced house in Plymouth, the EPC needs to be A at the least!

It's strange that some sites are giving a realistic current value, and some have just added a % to the artificially inflated price.

themovemarket.com showing it as worth £13m

zoopla.com showing it as worth £196k - £217k


Very strange happenings. On the face of it, someone has done something VERY VERY naughty. Whether that's the management company ripping off HOME, or whether it's HOME itself, time will tell. No-one pays £11.6m for a 4-bed terraced house in Plymouth on the same day it was sold for £170k.

[74tom] 24/11/2022 18:06

M&G have been buying the shares sold by the shorters ever since the mini budget disaster...

On 27th September they TR1'd a holding increase to ~79.5m shares from the ~77m they held in June...this evening's TR1 takes them to 113.1m, so they've bought nearly 34m shares in 2 months.

If they hadn't been buying then where would the share price be right now?

[williamcooper104] 24/11/2022 17:30

EPCs a good test If it's an old property they if it's not been refurbished it will be EPC D or below Conversely nobody would refurbish without getting an EPC C or B

[williamcooper104] 24/11/2022 17:28

Anyone seen anything on the EPCs of HOMEs assets

[74tom] 24/11/2022 16:21

Very true about it being PI money Specto.

Re. refurbs there is a key point in the short report which hasn't been discussed (P18);

"Knight Frank also state that they have not inspected the inside of any properties, nor have they been provided with lease information from Home REIT’s professional advisors, despite a claimed average lease term of 25 years." KF apparently state that this is 'due to the sensitive nature of the uses and occupants we have inspected the properties externally only'

Don't you think that pretty crazy? They effectively have zero first hand evidence that refurbs of any kind have been carried out?

[spectoacc] 24/11/2022 15:35

They'll no doubt claim the usual - that whilst the co was set up last week, the directors have X hundred years of combined experience.

Bond Wolfe auctions a particular favourite (owned/run by the RLE boys. Also takes fees from selling RLE properties). Claimed something like 78 years of experience as an auction house, yet had been set up the previous year.

[williamcooper104] 24/11/2022 15:12

As in poor financials goes with the territory But having operators with no/limited experience in such a sensitive area is a big problem

[williamcooper104] 24/11/2022 15:03

Looks like the rent collection problems is a red herring - unless they've been lending money to their tenants - which my favourite short of the year has been doing - or just telling lies - which they probably aren't But this is a good point The managers often cite their tenants' "proven operating track record" and so the short-seller's suggestion that most are actually relatively newly formed and have poor financials is of particular note, in our view,' the broker added.

[williamcooper104] 24/11/2022 14:58

Debatable - economically I would say they are - refurbs are way more grief than ground up new build But my guess is that per the tax legislation they probably aren't

[1tx] 24/11/2022 14:29

The institutional "investors" who put up £260m @ 115p per share last May must be a bit worried perhaps the £11m Terrace House in Plymouth is being converted into bedsits for them when they are sacked!

[spectoacc] 24/11/2022 14:01

Fair point, but is it development? It's just buying a resi house, capex, renting it out surely. They're not building it, nor even necessarily changing its use (tho probably are in a planning sense, to HMO).

[williamcooper104] 24/11/2022 13:58

Theres so much of that happening There's restrictions on the amount of development you can put in a reit; but you can still IIRC push that up to 25 percent of assets Most of the logistics REITs do forward funding agreements - as a developer - all you do is option the land, get planning, a tenant (or not even that), a D&B contract - you put down £50-250k type money and make millions when you're forward funding comes through That's one reason why internally managed REITs often do and should trade at a premium

[williamcooper104] 24/11/2022 13:54

It's a DCF If a bank enforces if would be by way of a portfolio sale via a share pledge security; they aren't going to auction of each property and you wouldn't get a change of use just because shareholders have changed US REITs hold properties at depreciated cost forcing all to look at cash not NAV

[spectoacc] 24/11/2022 13:35

Siphon from the hands of PI's more like - from where the institutional money originates too.

Agree there's far too much potential for money disappearing between a random co buying dirt-cheap property, and selling that property on to the REIT at much higher price. That, and the CSH angle of the directors (or mates) getting involved in the service co's.

If so profitable, why doesn't HOME do the purchasing and CapEx themselves? Who's behind those co's?

Agree the sector has questions to answer, as CSH, SOHO, HOME's s/p's all attest.

Surely rebuttal by Monday, can't release results until they've explained themselves.

[74tom] 24/11/2022 12:51

Interesting, thanks for the detail.

Let's see what they say on Monday / whenever they respond in full, having considered all of the facts it's hard not to agree with Viceroy's opinion that these REIT's need to be under an awful lot more scrutiny.

On the face of it the model makes sense and should benefit society, however there appears to be a horrible grey cloak of obfuscation around the financial workings of this REIT in particular (and more in the home REIT sector by the sounds of it).

In my view all we are seeing in the financial statements is the end result of the process you describe. What we should be seeing is full transparency;

Step 1. Properties should be purchased at market rate - i.e. 31 easington colliery sold last month for £25k, today Home REIT bought number 32 easington colliery for £25k.

Step 2. Home REIT spend £10k on refurbishing number 32 ready for a new tenant

Step 3. Home REIT have number 32 revalued and due to the security of the long term leasehold / credibility of the leasee and a premium has been added to the property of x %

NAV should therefore be made up of three parts;

- Market value (this would be prudent as in the event the REIT goes into administration they would almost certainly need to sell the property as housing stock)

- CAPEX spent on improvements

- Uplift premium - this should be clearly split out and audited in an extremely prudent manner with very specific formula's for calculating any uplift.

If the above steps aren't disclosed then IMO it's an invitation for bad actors to siphon money from the hands of institutional investors into their own pockets...

[williamcooper104] 24/11/2022 10:04

For AST net rent = gross less 10-25 percent plus maintenance capex liabilities

[williamcooper104] 24/11/2022 10:00

The difference comes from three things 1 - capex 2 - higher rents than ASTs/HMOs and more importantly much much lower costs - gross rent = net rent plus FRI risk transfer 3 - portfolio premium; have seen this so many times - buy an office in Liverpool stick a lab in one part rebadge as an emerging life science play and watch the value go up 50 percent - buy a bunch of ground rents such that have institutional appeal and watch them double Forgot about red book - the value is the DCF future cashflows - hence why said that all that really matters is how sustainable are the rents

[williamcooper104] 24/11/2022 09:49

Do you know how many REITs are externally managed; it's about half They all have potential conflicts; it's well known HOMEs fee/management structure is market norm

[loglorry1] 24/11/2022 09:36

I've closed my HOME long now. It has bounced enough given the uncertainty.