Home Reit Share Discussion Threads

[williamcooper104] 30/11/2022 16:05

Reit rules from memory are 25 percent limit on development - but I think that's a ground up/knock down and rebuilt type development Buying an existing property and refurbishing ought not be be caught; that's just asset management So no reason, as far as I'm aware, why a REIT couldn't buy properties and refurb them The argument could be that it takes ages to build a portfolio; hard to build up But given HOMEs vendors seemed to have done it on 18-24 months I'm not sure that stacks up

[spectoacc] 30/11/2022 15:55

@74tom - is it because of the nature of the REIT structure? ie the rules don't allow development?

Which doesn't for a moment take away from the fact that person or persons have set up multiple small co's (one of the directors of one I mentioned previously had 35), bought up some junk property, allegedly refurb'd it, passed it on to a new charity set up by "characters" (many of the same people), then sold at more than double the price paid to HOME, gifted some of the money to the "charity", and sailed off into the sunset with huge profits.

Rinse & repeat.

I think there's a reason these are being done as SPV's - limited liability on any single deal.

@Kimboy2 - those must be a lot of work...

[dodddy] 30/11/2022 15:52

>74tom no way will they want to try and sell any of their stuff. That would show up how overpriced their portfolio actually is

[74tom] 30/11/2022 15:51

@Tradez4dayz, if the model was always going to be 'acquire lots of property and then value it based on an income stream' why did Home need vendors as middlemen?

Why didn't Home use the £1b cash pile to buy double the number of properties, do them up and then find reputable tenants to manage them? In order to qualify as a 'reputable' tenant a company would need to have a certain length of operating record and appropriately sized balance sheet... Once they had the tenants in place and the properties were all full surely they could have revalued them based on the income stream + strength of contracts?

That way shareholders would have benefitted from a large revaluation in NAV and nobody could have dreamed of issuing a short report with the allegations that have been brought up. Instead, shareholders have been hammered because it appears that almost all of the value creation / destruction has taken place outside of the REIT structure... why is that the case??

[spectoacc] 30/11/2022 15:50

Missed that, thanks @74tom.

I don't think lenders will pull the plug for reasons of optics (turfing out the vulnerable) and lack of recovery (property not worth anything like they claim).

Comes back, again, to Knight Frank. The RNS this morning was explicitly vague about how KF arrived at their valuations. I'm intrigued to know what they actually put Peterlee in the books at.

@Tradez - how secure is that income stream, how viable are the "charity" lessees, what condition will the houses be in if they ever hand them back. Seems to be no backing behind the charities whatsoever - as shown by HOME having to indirectly "seed" them, and the characters involved with them, and most being very recent despite the claims of sector experience.

[74tom] 30/11/2022 15:42

Viceroy's response came out just over an hour ago (hence the dip in share price);

Funnily enough it contains an EPC analysis which comes to the same conclusion as we did last week, obviously this point is now reinforced by what Home have disclosed re. CAPEX spend on certain portfolios...

Regarding what happens next and whether the shorter believes it's a zero or not, my thinking is it all depends on what Scottish Widows / institutional investors were told when they invested / lent funds.

Were they aware that they would be buying £14m worth of property for £28m? And included in that £28m were £7m profit for the 'vendors' who Home were going to buying from? As @Specto points out, if this had been disclosed in the prospectus I'm not sure there would have been any / many takers... The point is are the portfolios disclosed today typical of the entire portfolio? That is fairly crucial IMO.

If Lloyds requests repayment on the £250m then Home may have a problem; at 28/02 they held £137m of restricted cash & £15m of cash. They've deployed 88% of the £263m gross proceeds raised in May (if we assume placing costs of £10m, then they have about £20m of this left) so by my calculations they would be short by around £70-75m.

How would they plug such a gap? Well we heard on the call that they won't under any circumstances sell the property (this was in relation to a question around share buybacks) and in such a situation I can't see how they could raise that kind of capital in the market or at a respectable rate from another lender?

All speculation at present, as per VR's response one of the main things that needs to be addressed is KYC around the vendors. I think getting absolute clarity on how much of the £950m of equity capital has been paid to them as 'profit', who the vendors are and whether or not they have any connection whatsoever with the 'tenants' is critical to assessing the likelihood of long term recovery.

[tradez4dayz] 30/11/2022 15:35

What I am saying is they paid for an income stream though. Hence the difference between that and an empty house.Agreed re maintenance will be high but comes back to a need from councils to house them.All I think is that a similar short report could easily have been written about any number of reits.

[spectoacc] 30/11/2022 15:30

@Tradez - am I right in thinking the gifted rent that went to Circle, has transferred over to the new operator? Hence when HOME say "still paying rent", what they mean is, "Still paying rent from the money we originally gave".

I'm not convinced the business is viable - inserting a charity as lessee is fine, if the charity's legit. How many are?

My sister-in-law's sister is in the sector, both as a landlord and operator, tho in a small way (& has no knowledge of HOME). She's always looking out for houses with solid walls - she says the stud partition interior walls get holes punched in them.

The rents paid are very high, that much is true.

That's not to disparage HOME's charity's tenants, but does confirm the amount of CapEx/management needed.

[hugepants] 30/11/2022 15:28

It's probably oversold on a 55% discount imo but even at this price it's not that attractive given the wider market containing so many bombed out reits that don't have the same whiff eg. WKP (flexible london office space) on a similar discount. And quite a few others trading on 40-50% discounts eg. NRR, API, EBOX, UKCM etc etc

[dodddy] 30/11/2022 15:17

All well and good but bottom line is they have massively overpaid and overstated assets. The ongoing maintenance on this type of tenant/property is huge and they will also have no deposits from tenants. This model along with HMO's always look like great yields,but it's hugely intensive and not easy to manage.

[tradez4dayz] 30/11/2022 15:01

If in 2 or 10 years time the tenant is still paying rent then this strategy does indeed work. I don't see councils letting housing groups fail, it just wouldn't happen.As is shown by circle where the leases have just notated on the same terms to a new group?I don't think it will fall and worrying about what vp is, is an illogical answer. Apply that to sheds, or supermarkets? What's the vp value of a shed in Doncaster vs what going rate is now (or was 9 months ago) even to a shoddy tenant?This is an income stream reit not one where you are trying to buy and sell assets.

[spectoacc] 30/11/2022 14:42

CSH have their own problems.

The issue is surely the lessee tenants, and the fact the rents aren't sustainable (4% uplifts, utility bills, CapEx - am told some of the houses at this end of the market get trashed).

That, and the alleged false NAV. And the need to fund a lessee's first 12 months of rent.

I think there's a reason public markets haven't done this sort of thing before. And there's a reason the sector (at the lessee end) is full of "colourful" characters running "charities".

The money's been extracted at the point HOME buy the properties. If the prospectus said "we'll raise £1bn, and spend it to buy £500m of properties", I think you'd say you were out.

Is HOME salvageable? Honestly don't know. VR's response should be interesting, I hope they don't persist with the parts they obviously got wrong.

[williamcooper104] 30/11/2022 14:33

Given the LTV (net of blocked cash) is c11 percent this isn't a zero VR haven't claimed that - and shorts aren't usually shy about that It's pretty clear that the external manager/BoD are at fault here But that can be changed Rebase rents to sustainable levels, change management - there's a ready to go team sitting in Atriato; who've spent ages working up a sustainable model Consolidate HOME with CSH/SOHO and you've then got a proper REIT > £1bn with a lower cost of equity

[george stobart] 30/11/2022 14:32

this baby will be 25p by Friday, I will be scooping upshares to catch a dead cat bounce and make quick money

[williamcooper104] 30/11/2022 14:24

The bank valuation will absolutely have VP values Technically that belongs to the bank; but lenders usually share their valuations The BoD can get VP/alternative use values

[williamcooper104] 30/11/2022 14:20

I kept getting cut out of the call But I asked them what proportion of their assets were EPC rated C and above Given they've all been "refurbished" the answer should be > 90 percent

[sunshine today] 30/11/2022 14:17

Rather a lot of speculators bought in after todays updates.

It appears they have been cooked in under 6 hours

[sunshine today] 30/11/2022 14:14

It looks as if this could go down the pan, as confidence evaporates.

The short seller will no doubt have plenty of dry powder to be published in the next day or two.

You only want to hold an asset rich company if the assets are real.

In the event of a fire sale you need to have cover, if not, the whole exercise of asset safety, has done you nothing, but harm.

[spectoacc] 30/11/2022 13:58

They also said today:
"...Benefit from residual value and alternative use characteristics".

So is it just a feeling, rather than numbers?


This made me chuckle too, when talking about VR's Land Reg allegations (which we'd already established as wrong):


"..This gives the misleading impression that the price of that single property had increased from £0.2 million to £5.9 million. The actual market value of this specific property, which is the value used in the Company's NAV calculations and has most recently been determined by Knight Frank, is £0.39 million (as at 31 August 2022)."


Don't worry, it hasn't really gone from £0.2m to £5.9m - it's gone from £0.2m to £0.39m.

Again - KF are balls-deep in this IMO.

[bondholder] 30/11/2022 13:33

In todays webinar a question was asked about the vacant possession value of the properties. The answer given was that they do not have that data. I remember the following from the update investor presentation page 23:• Robust portfolio with secure long-dated inflation linked income underpinned by built property assets with a very low spread to vacant possession valueHow were they able to assert a very low spread if they don't have the data ?

[74tom] 30/11/2022 13:31

*This should clearly unwind in future valuations

@Marben100, I don't really understand why it would ever be part of the NAV though? It has absolutely no relevance to the value of the property and is cash which should have remained with Home REIT but has in fact been been diverted to the tenants. If the tenants had been well established then they wouldn't have needed the rent advances, it's only because they are brand new / financially weak that this is required.

What we need to know is the total value of rent advances provided to tenants since inception. If the 5.2% of average property spend in the today's disclosed reconciliations is applicable to the whole portfolio then surely this is a material amount of money which should have been clearly disclosed in the annual report...

So a question for tomorrow's call will be;

'Can you confirm whether total rent advances provided to tenants since Home REIT's IPO are higher than total rent income recognised in the financial statements?'

If the answer to that question is yes then it'll not be a good look!

[marben100] 30/11/2022 13:10

"Chairwoman of HOME is Lynne Fennah who destroyed shareholder value when managing Empiric Student REIT and she got booted out recently.

She has long track record of incinerating value for investors."

Please could you elaborate on that accusation. I am not familiar with ESP in any detail but observe that (unsurprisingly) its share price was hammered when Covid struck but has since recovered to close to its pre-covid value.

How is that "incinerating value"?

[spectoacc] 30/11/2022 13:05

Thanks @marben100, that final point is the key one.

There's no way AHG1 spent £636k, but even if they did, the £213k margin is a direct loss of value to HOME shareholders, and the average c.£84k per renovated (but not to high EPC) house is simply nuts.

Lots of questions, lots of allegations, but the ones we thought were true have largely been confirmed today by HOME, & I think the share price reaction says it all.