Home Reit Share Discussion Threads

[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.

[74tom] 24/11/2022 09:14

Williamcooper104, you state that there isn't a problem because HOME's external manager isn't conflicted on valuation... you are wrong IMO as page 55 of the annual report says;

"Investment Adviser

On 22 September 2020 Alvarium Home REIT Advisors Ltd was appointed as the investment adviser to the Company by entering into the Investment Advisory Agreement with the Company.

Under this agreement, the Investment Adviser will advise the Company in relation to the management, investment and reinvestment of the assets of the Company. Alvarium Home REIT Advisors Ltd is a subsidiary of Alvarium Investments Limited, the ultimate parent company of the AIFM and the Broker to the Company. The investment advisory fees shall be an amount calculated in arrears in respect of each month, in each case based upon the net asset value of the Company on the following basis:

a One-twelfth of 0.85 per cent, per calendar month of net asset value up to and including £500 million;

b One-twelfth of 0.75 per cent per calendar month of net asset value above £500 million up to and including £750 million; and

c One-twelfth of 0.65 per cent per calendar month of net asset value above £750 million"

-----------------------

So there is a clear benefit of overvaluing assets to Alvarium, the more cash that is deployed the more fees they earn...

On £1b deployed they earn £4.25m per annum on the first £500m, £1.875m on the next £250m and then £650k per £100m incremental thereafter.

------------------------

"Buy at £300k, spend £200k get £300k profit via letting at higher rental levels to an apparently strong covenant"


Not sure I get this. Are you effectively saying that in the eyes of a lender the value of a property is higher because it's been let at a higher rental price on an apparently unbreakable 25 year term with 'upward only' rent reviews? I.e. the NPV of 25 years of future rental cashflows means the asset has additional value to it's list price?

The annual report says;

"The investment properties have been independently valued at fair value by Knight Frank LLP, the Independent Valuer, an accredited external valuer with recognised and relevant professional qualifications and recent experience of the location and category of the investment properties being valued. The valuations are the
ultimate responsibility of the Board; please see note 7 for further information"

I specifically noted the point on 'category of the investment properties being valued'

So is a terrace house in Easington Colliery that was sold for £29k in November 2020 now worth £75k because it's classed as an 'investment property' rather than simply residential?

If the answer to that question is yes then we might be getting somewhere here...

[babbler] 24/11/2022 08:54

They will probably just do it with results.

[spectoacc] 24/11/2022 07:40

@alanpro1 - thanks for your contribution.

There's not that many points raised, if they're not easily rebutted then that implies there's something behind them, just as there was with CSH/Shadowfall.

Eg
"- The Reit’s largest tenants ‘do not appear to be paying any rent’.
- Its largest clients ‘appear’ to share the same office and are run by the same people in contravention of a policy to limit individual client exposure to 15% of assets.
- Properties had been flipped between tenants to generate profits.
- Many of the properties were bought at inflated prices to artificially inflate the trust’s net asset value (NAV).
- Fund manager Alvarium’s payment as a percentage of NAV was not aligned with the performance of the portfolio."

(H/T Citywire).

[alanpro1] 24/11/2022 07:29

Spec you talk so much sh1te. You honestly think there will be a rebuttal to a 27 page short in 18 hours. Amateur

[spectoacc] 24/11/2022 06:57

Interesting stuff, thanks all.

I know Peterlee, it's the pits (no, wait - former pits). Can see both arguments on prices paid but does rely on those rents keeping coming in - because if not, HOME are getting back what AHG1 paid, not what they themselves paid.

Then the question becomes - where does the benefit of the AHG1 profit reside.

Expecting a rebuttal today, and it had better be a comprehensive one.

[williamcooper104] 24/11/2022 06:15

Buy at £300k, spend £200k get £300k profit via letting at higher rental levels to an apparently strong covenant A good profit isn't necessarily proof of over valuation; unlike CSH, HOMEs external manager isn't conflicted on this - Notable that HOME don't apply any portfolio valuation premium; eg KF value each asset separately That rents paid for specialist/temp accommodation are higher than HMO/AST rents is fine - the question is how much of a premium and can admin/gov actions cram it down Against that if HOME refuses to renew a tenancy with a post admin charity then that means a big B&B bill for the local authority

[williamcooper104] 23/11/2022 20:52

Funded by local councils/grants £61 does look cheap - but all depends on location