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[tr200g] 30/11/2022 11:16

on Peterlee-isn't the point on valuations that the market value is so low as very few people with a choice wants to actually live there in a very deprived town with horrible looking houses? but for vulnerable people with no choice (ie. those funded by the govt) there is utility for both them and the government for finding a roof over their head? even if there is value leakage to the vendors it is still worth it.

perhaps.

as for valuation again, no KF don't use the price paid as starting point. That's the point about an independent valuation.

certainly the whole thing would look better if the charities were well established with big balance sheets - I think that Alvarium are going to be able to explain why their tenants don't fit that description

[spectoacc] 30/11/2022 11:05

Thanks @tr200g - but isn't the problem that KF's starting point is the 848k that HOME paid? Not the 326k/350k, which is a lot nearer to the actual value (as is demonstrably true at Peterlee, the only one I've looked at in depth).

And more demonstrably true when you consider a large chunk of the 848k wasn't for the 10 houses at all - it was to go on to the lessees to cover the first 12 months of what they pay back to HOME in rent. So not even possible to argue the huge uplift is thanks to the tenants in place.

If 848k isn't what they went in the books at, if they actually went in at say 400k (to pick a number), that would indeed change things.

[tr200g] 30/11/2022 11:01

Specto I see some merit in your posts concerning fears over the longevity of the charity tenants but it's not true that the properties go in their "books" at the price paid and then are "uplifted". The NAV valuation is the KF red book valuation in line with accounting standards. The uplift comes from any move in yields and comparative valuations that KF uses at the next valuation point. I will listen to the investor call and feedback

[tradez4dayz] 30/11/2022 10:34

True re the valuation, but I suspect KF are valuing as an income stream of the lease rather than the asset value which I agree doesn't quite sit right.However the lenders independent valuers must have also agreed with that approach.

[spectoacc] 30/11/2022 10:29

@Tradez4Dayz - absolutely, on the first point. Fraser Perring is in this to make money, made some bonkers allegations, but - fundamentally, he's right IMO. Unfortunately by coming out with the bonkers stuff, he allowed HOME to include some legitimate rebuttals. We've all been saying on here that some of what he claimed was clearly mistaken.

As to the circling of income - it's basically Ponzi. We're told (to use my favourite Peterlee example) that HOME has paid £848k for 10 houses, let to an experienced charity lessee on a very long-term lease. Great.

But we hadn't been told that that portfolio was put together for £326k (VR) or £350k (HOME), less than a year earlier, and that some of that £848k is being paid to the lessee to cover the first 12 months of rent. Now, either they're very slow to get those 10 houses rented, or the charity should be absolutely in clover in Year 1. Accounts evidence across all the lessees suggest that's not the case.

So if they're not in clover with a 12 month rent bung, how on earth will they afford to pay full rent in subsequent years? Of course HOME can go on about receiving 100% of rents - it's their money! More, as @74Tom points out, the rents are actually only about half of the cash bung - where's the rest gone?

Yes, delays to initial LA payments etc - but the point stands, the business models seem to only have a few years in them, not 25-30 years.

Main point for me - if you grant a rent-free, or give other incentives, that shouldn't/doesn't count as part of the capital value. So the value of the property in HOME's books shouldn't be £848k, it should be the market value of the actual buildings. Not only is it not, but they've subsequently increased it by 6%. That's simply nuts, and demonstrably so at Peterlee.

[tradez4dayz] 30/11/2022 10:20

Two things from me,1 we talk about crooks setting up charities what about Fraser Perring owner and lead analyst of Viceroy. Dig into his past and you will find plenty of amoral dodgy stuff. For me he isn't to be trusted and is clearly just scare mongering go make money. Though I do get some of his points, a lot were actually due to his incompetence, not knowing a company has to straight line their income under IFRS?? Pretty basic for an 'analyst.'2 there is so much discussion about this round circling of income. What really is the difference between this and landlords paying lease premiums, giving long rent frees or other lease incentives? Seems bizarre people keep focusing on it. I get that it then falls back to stability of tenant which is where there are genuine questions to be asked.

[spectoacc] 30/11/2022 10:20

@74tom - remarkable isn't it. And knowing who's involved with the charity lessees (some alleged dodgy characters, & many of the same ones), the whole thing stinks.

Assuming LA's keep funding the rents, it can roll on until the backlog of maintenance etc (& 4% annual rental uplifts) causes major problems. But then presumably another charity gets set up, and gets bunged some more cash?

Knight Frank seem the weak link in all this.

[dodddy] 30/11/2022 09:54

It's a nonsense rebuttal that raises more questions. Viceroy will rip this to shreds. This has 25p written all over it

[74tom] 30/11/2022 09:48

They've also disclosed that £1.47m of the £28.3m spent has been given to tenants as 'additional funding' to cover 12 months rent. As stated above this is 5.2% of the cash deployed by Home REIT and as far as I know this is the first time it has been publicly disclosed.

HOME have deployed an astonishing ~£950m since IPO on >2200 properties, if the 5.2% in additional tenant funding disclosed this morning is typical of the entire portfolio then they have given tenants ~£49.4m of additional funding...

Rental income in their 2021 final results to 31/08/21 was £11.7m and in the half year to 28/02/22 £17.7m, so that would leave a potential £20m in 'additional funding' still to flow though...

What's worse is that this funding cost has apparently been capitalised in the property NAV, can anyone confirm why this would make any sense as it clearly adds no value to the property?

They've then revalued the whole portfolio upwards by a further 6.4% / £43m

If the £49.4m of additional tenant funding estimated above is anywhere near the mark, it's then been increased in value by 6.4% / £3m...

[sunshine today] 30/11/2022 09:41

Umm.

It’s interesting to see the buying first thing this morning, as investors see pages of dribble, and take the view all is fine.

The next round from the shorter will probably be as hard hitting as the first. ( previous form ).

The real smell will in my opinion, come to light if those developers, doing the selling, are in any way :

Linked to the business

Linked to each other.

A great deal has come to light from the companies reply, unfortunately for them, it’s just made matters worse in my opinion.

[alanpro1] 30/11/2022 09:15

Spec the thing is you bring up so many r3tarded points its not even worth refuting you. A vast amount of properties are passed on to relatives at reduced prices to negate any capital gain from them. You highlight all the individual anomalies like its the norm, but look at any postcode and youl see some properties haven't changed value for 2 decades yet others have tripled in value.

[alanpro1] 30/11/2022 09:07

But granted the 25-38% profit from developers is far higher than the 15%-18% CSH reported.

[spectoacc] 30/11/2022 08:58

If you want to refute any of the above @alanpro1, by all means add something to the debate, I'd be happy to hear an actual contribution.


3 of the 10 Peterlee properties at random:


24 Ninth Street, SR8 4LZ, sold for £19k on October 2019 - it previously sold for the same price in Nov 2003, and for £26.5k in October 2005. Gives a flavour of the area, and whether property values rise or fall around there.

See photos from 2016 listing - not too bad inside, tho next door boarded up at the time, fairly typical.

Price now around 30k for the postcode.


51 Eleventh Street, SR8 4QQ, sold for £23.5k in March 2017, having been bought for £13k in Feb 2016 - maybe an auction & refurb job. Looks decent in the pictures from 2017:


96 Seventh Street, SR8 4JQ, sold for £42,750 in December 2005, £16k in April 2017, £17k in December 2017. Current prices £15k-£40k for same postcode.


[Rightmove links all removed for length - but easy to look up].

[dodddy] 30/11/2022 08:56

With a lot more informed comment than your worthless post. Add to the argument or go and play somewhere else

[spectoacc] 30/11/2022 08:35

Sorry, a rare bull point, be remiss not to post it:

"Tenants typically seek to run a minor surplus on their financial accounts. As previously disclosed, the rent paid to Home REIT represents on average c. 45% of the exempt housing benefit that they can claim, with the remainder of the funds allocated to maintenance costs, the provision of additional support services and a share of central costs."

But I'd susggest utilities/maintenance costs (eg wages) recently are going to test each and every business model.

Also love the way almost every lessee - that they've done significant Due Diligence on - has some kind of error in its website, accounts, management etc acknowledged this morning.


"Viceroy states that several Tenant directors/trustees (e.g. at Big Help Project and CG Community Council) also own property development companies. As described in Allegation 5 below, Home REIT has rigorous controls and processes in place to ensure that the assets it acquires represent fair value for all stakeholders."

Not sure I need comment on that.


Interesting:

"· Knight Frank inspects the properties externally for the valuation following the purchase of those properties by Home REIT. It is not standard market practice for a residential property portfolio of this scale for every property to be inspected internally at each bi-annual valuation especially where access to the building can be difficult and the Valuer can obtain sufficient information about the internal layout and state of repair of the residential property from other sources. However, to provide further assurance in this area, Knight Frank intends to start internal inspections on a random sample basis going forward."

"Knight Frank has provided Home REIT with details of comparable market transactions when presenting its valuations."

"The Company has £250 million of long-term fixed rate debt. This debt requires in-depth lender engagement, which includes reviewing property titles, building surveys, valuations, rental credit quality and other technical due diligence. At no point have the Company's lenders raised any material issues with either their own valuations or due diligence or the Company's valuations in any discussion with the Company."


I'm going to repeat the Peterlee stuff in another post, apologies for repetition but it needs saying again, in light of the above.

I note HOME demonstrate profits to the co's they're buying from of between 20% and 47%, some in less than a year - do they think that's reasonable? Am I in the wrong game? How much do the "charities" pay their execs? Some of the execs are also involvedin the property co's putting the portfolios together. This is all acknowledged this morning by HOME, and easily verifiable anyway.

[spectoacc] 30/11/2022 08:23

Thanks @dodddy. Seems HOME's rents are capped at 4%, collared at 1%. 4% pa escalates pretty quickly, more so when you've utility bills to pay and significant upkeep costs.

"Home REIT is completely confident in the integrity of the business it is operating, its financial soundness..."

Share price reaction today says they're among the only ones - it fell from near-80p.


I could spend all day on this, but:


..Provide high-quality accommodation to homeless and vulnerable individuals in need of housing; [Maybe]
· Benefit from residual value and alternative use characteristics; [Proven nonsense]
· Are let on very long unexpired lease terms (typically 20 to 30 years to expiry or first break); [Arguably useless when examining the lessees]
· Have triple net, full repairing and insuring leases; [Gulp]
· Have rent reviews that are inflation-linked (typically capped at 4% and collared at 1%) or contain fixed uplifts. [Seemingly unsustainable]


This one too:

. The long-term supply demand imbalance for all forms of residential accommodation in the UK, which has historically supported consistent capital appreciation for UK housing stock.

They've not been checking Peterlee on Rightmove then.

[dodddy] 30/11/2022 08:15

LA rates aren't index linked. About 6 years ago they froze HB rate for four years. Think we have that to come again soon too

[spectoacc] 30/11/2022 08:06

@tr200g - what have they been paid from? They've been paid in part from the money HOME paid the co who put the portfolio together - that's Key Point no.1, & where the "Ponzi" allegation comes from, and has been admitted this morning.

Key Point no.2 is that the rents are supposedly index-linked, but are the LA payments? What about upkeep of the properties? What about increasing utilities costs? How are these charities in any way sustainable? (In Circle's case, it went pop very quickly).

Key Point no.3 - the people behind these charities - whom HOME acknowledged this morning are a web of the same people - have (chooses words carefully) extremely chequered histories. What, speaking hypothetically, would a conman be doing running a charity for the homeless? Same applies to many of the co's putting the portfolios together to flog to HOME.

Key Point no.4 - HOME are defending alternative use, yet I've demonstrated that's a complete farce with the Peterlee portfolio. I can't prove that's the case across the entire portfolio, but if it's anywhere close, HOME do not have the NAV to back their loans. And yes - that means Knight Frank are balls-deep in this.


Follow the money - it's being extracted from HOME at the point they pay hugely inflated prices for "portfolios" to a web of co's. It's being extracted from LA's/govnt by the supposed charities. I don't see either lasting.

[tr200g] 30/11/2022 08:00

The problem with this theory specto is the local authorities have signed off on and continue to 100pc pay the rents across some 3,000 properties.
If the valuation is wrong, that's at the hands of Knight Frank and is not some kind of ponzi. The rents are not unaffordable - the evidence is they have been paid!

[spectoacc] 30/11/2022 07:52

I guess there's a chance Peterlee is an isolated example, where HOME got conned. And yet they're defending it as legit.

£190k on refurbs! Honestly, the 10 houses together may only be worth that. They'd lose at least half a million quid on an 850k purchase on alternative use.

And defending a c.6% valuation uplift post-purchase - I guess if you overpay 3-fold, what's an extra 6% on top.

Confirmation that the early rents effectively come from the price HOME paid seems the key thing. They've refuted the VR allegations we knew weren't true, but have effectively confirmed most of the rest.

HOME's denouement may have to wait until the inflation-linked rents become clearly unaffordable, and there's no gifted money left to pay them. It'll be an almighty mess when it implodes, and affect a lot of people.

[74tom] 30/11/2022 07:37

Indeed Specto. Very end of the RNS contains reconciliations of what they paid vs what was spent prior to purchase - says £190k was spent on refurbishing the 10 Peterlee properties, imagine spending that and only having 1 with an EPC rating of C or better ;)