Home Reit Share Discussion Threads

[williamcooper104] 30/11/2022 21:54

There's a very simple measure Estimate what HOMEs vendors paid for the properties and then calculate NAV based on that If we think it's about half of what HOME paid then it's probably worth 40-50p Though could well be volatile Post the £263m equity raise in May they've spent about £227m - so their LTV should be about 6-7 percent - so not much risk their I wouldn't get fixated on earnings/divi yield as this is likely to fall

[williamcooper104] 30/11/2022 21:49

You absolutely care; they have not had Final Certifications that the building works have been completed The sl accounting point was sloppily made by VR - of course it's standard IFRS (shouldn't be - and is adjusted out under AFFO measures per US GAAP) - but HOME rely on it a lot more than most Fine if you have a long ground lease Not fine if you have it with a tenant with no EBITDAR coverage

[george stobbart] 30/11/2022 21:45

Can’t we all just agree that this one is coming to daddy at 25p by Friday to catch a nice dead cat bounce

[retailgains12] 30/11/2022 21:25

But up until now why would they really care how much the seller bought it for or spent on it?

If objectively you saw a great opportunity to invest in something which provided a return you were more than happy with, and passed the basic surveys would you turn down investing in it just because someone might have bought it cheaper?

I'd like to think they decide whether something is worth buying based on the future return of it, not just how much the previous owner has spent on it

[williamcooper104] 30/11/2022 21:16

Read HOME response carefully They don't know what was spent in most cases on refurbishments, most of the refurbs are estimates based on what they think it would cost or what the developer told them it would cost - where's their Final Certifications Ok - looks sloppy - actually very sloppy - why no Final Certs - but maybe ok But then why is the vast majority of their portfolio from what we can see EPC below C - that simply doesn't square with assets being extensively refurbished

[retailgains12] 30/11/2022 20:43

I've no position here, but think its an interesting situation to watch.

I will say however there does seem to be quite the short bias on this board so far so ill consider some alternative points.

Spectoacc one of your basis for this being a ponzi seems to be that the Home have intentionally overpaid for property based on the fact that the selling companies have made such a mark up.

I think this point is being focused on far too much, your main issue seems to be with the peterlee properties going from 350k to being sold for 850k. In one of your posts you mentioned the fair value of the property now will be close to 350k, which doesn't really seem fair. Even stripping out the admittedly dodgy initial vendor contribution which i will come back to the developers have spent 224k on refurbs.

The developing companies wont have spent 224k refurbishing the properties for fun so I don't think you can really argue that the properties would be worth less than 570k.

Then add in the fact that if your whole company is property development you will likely be picking up bargains and if anything probably picking up the right properties for a good deal, a much better price than the average civilian.

I see part of your issue is that the rise has been so quick, over the last two years or so. Sorry to break it to you but have you not seen the housing market as a whole over that time? Since Covid the average house price has risen by 27.7% - The Average.

Therefore i don't think its unfeasible that if you bought some development properties 2 years ago, benefited from the general market appreciation over the last two years plus added value above cost on a refurb then the margins you got if selling this year could be substantially higher than average, from good timing alone.

Have Home overpaid - quite likely, but does that mean there is fraud afoot and this is a ponzi? I'm not so sure.

I also don't really agree with the assertion that Home is generally a bad company to invest in because they don't develop the properties themselves and essentially give some profit to another company to do it instead. Thats a similar concept to saying mcdonalds are a bad company and you should never invest in them because they don't grow their own potatoes? You leverage other companies time, scale and resource to do things you cant or don't want to do, thats part and parcel of business. Home's business is essentially generating a steady income stream, not pure property development.

With regards to the aforementioned initial vendor contribution, i do agree with you this does raise some red flags and the fact its not been mentioned previously isn't great. However, from an audit point of view these figures are material enough that the auditors must have reviewed how these contributions are treated and agreed with it, if they haven't then that is sheer negligence and no doubt there will be an investigation to follow. Perhaps as a chartered accountant myself i have too much faith in other chartered professionals though! I'd be interesting to see just how these are accounted for though, think they could do with clarifying this better on the call tomorrow.

I think the short report does raise some good points which whilst may not be down to fraud do warrant some additional clarification, but I cant help feel like some of the really basic and completely incorrect points discredit the short selling report. E.g The fact they don't know that a company has to straight line their income under IFRS is pretty laughable, extremely basic and makes you question the level of research they have really done if they couldn't even comprehend that. To me it looks like they have gone a few things don't seem quite right here but we haven't got enough points to really make it tank, lets try and flesh out the report with anything we've got.

Viceroy doesn't even mention this in their response to Home today, which seems a pretty weak response to me filled with more fluff. A case of 'oh home have clarified some points here how can we flesh out the response a bit more? Oh I know lets moan about their EPC ratings instead'.

[jonals] 30/11/2022 19:19

there's a good Alphaville summary here

[williamcooper104] 30/11/2022 18:40

If housing benefits are cut and/or the charities are forced to operate on a minimum operating surplus Then the charity goes into admin; the administrator offers HOME a lower rent, HOME can reject that but then it's left with the much lower alternative use value

[williamcooper104] 30/11/2022 18:34

Yep - that's an interesting price point - not least as PRSs new builds will be new builds with EPC Bs 35 percent premium for what looks like inferior properties (note the NOI is likely to be c10-15 percent less for PRS, so the total delta in NOI could be c50 percent) I get that HOME rents are cheaper than B&B per night costs But what's to stop the benefits being cut to a level that leaves HOME with a rent that's materially lower than passing rent but still at a premium to alternative use (especially when the alternative use is not only lower rents but yields >10)

[74tom] 30/11/2022 18:13

Some broker feedback;



"Commenting after Home’s conference call, Peel Hunt analyst Anthony Leatham agreed the rebuttal was ‘fairly comprehensive’. He said there were unanswered questions raised by the collapse of Circle Housing and the transfer of its leases, which were sub-let to Mears Group(MER), the housing and social care provider, to One CIC.

‘The properties were sublet to Mears on a ten-year lease and the report states that the original vendor provided a donation to Circle “to cover the difference over the course of the lease between the cost of the head lease to Home Reit and the cost of the sub-lease to Mears”.

‘Whilst these leases (and the donation) have since been transferred to One CIC, it is not clear why the difference in rent exists, whether this impacts the valuation of those assets, and what happens at the end of the Mears sub-lease. Noble Tree, another tenant also sub-lets to Mears, and it is unclear if similar issues exist here,’ the analyst said.

Leatham was also concerned by the:

potential conflict for interest with some of the directors of charities leasing Home properties also engaged in property development;
affordability of rents with Home charging 35% more for refurbished properties than PRS Reit (PRSR) did on new-build homes;
18%-42% net profit margins of developers of Home properties which, while well below the gross margins calculated by Viceroy and challenged by Home, still appeared ‘generous’."

The affordability comments vs PRS Reit's new builds are interesting.

[williamcooper104] 30/11/2022 17:48

Just looking into that - there was quite a bit per the Feb HY (from memory about £130m blocked and £15-20m free cash) but I think there's been some acquisitions since

[williamcooper104] 30/11/2022 17:45

198 is a voluntary election and if the capital allowances are being transferred for £1 then you still need to know what they are

[tradez4dayz] 30/11/2022 17:22

Also some serious volumes traded this last week, must nearly be the whole share cap

[dodddy] 30/11/2022 17:21

A fool and his money ......

[tradez4dayz] 30/11/2022 17:11

Redundant point re cap allowances you just get a s198 election on acquisition

[williamcooper104] 30/11/2022 16:48

Still todays RNS and follow up gives us as idea of what NAV should be It's gross assets (ex cash) with a 50 percent discount plus a premium for having FRI/low management cost assets with no tenant turnover (as would be on re based rents) less a discount for current expected resi market downturn - so probably a good starting point is just half the property values

[williamcooper104] 30/11/2022 16:43

Why does a non tax paying REIT care about capital allowances? Because they are used to calculate the taxable profits that they have to pay out 90 percent of

[williamcooper104] 30/11/2022 16:42

Read the VR follow up Really the absolutely damming bit is the EPCs It is inconceivable that someone would spend hundreds of thousands to millions and not get to EPC C I personally don't think, for what it's worth, the external manager has been back hand trousering cash, just think they've been hugely negligent I note "estimated refurb costs" so they didn't even get these - by the way you need those costs for capital allowances

[williamcooper104] 30/11/2022 16:39

Honestly - please - by all means buy HOME - but only on your own research Never ever buy on the basis that an institutional shareholder is buying in

[74tom] 30/11/2022 16:39

Very interesting @Williamcooper, if possible and they had chosen that route then it's conceivable that the shares would be trading at over £1.50 right now, assuming they could have achieved the same valuations with KF... Critical one to get clarity on I think, if they don't have a stronger reason than 'saving stamp duty' then it'll look silly.

I asked a similar question earlier on Specto, I think it's a great one to ask on the call tomorrow. After the figures disclosed in the RNS this morning I'm dubious, it all depends if the 12 month advances were given throughout the portfolio or if these were isolated situations. From the discussion on today's call it sounded like fairly standard practice?

If so, they appear to be missing some accounting entries that recognise cash paid to what are effectively their 'customers' and these amounts being offset against revenue received. Giving it to the vendor to then give to the tenant / customer is roundaboutery which IMO hasn't been accounted for.

You could theoretically argue that it's a simple timing difference, however when are the advances getting repaid? If it's more than a year then surely it becomes a deposit / something else.

[spectoacc] 30/11/2022 16:37

I've said it before - the big institutional investors know naff-all. As long as they have their backs covered (auditors, Board, Knight Frank) they won't care.

M&G haven't done too well so far, buying ahead of the non-denial denial.

Many of VR's allegations, certainly the ones we've all discussed on here, have been largely confirmed by HOME this morning (at the same time as saying there's no truth to them!).

Should add I'm not short HOME, but find the whole thing fascinating (as I did at CSH). Undecided if there's a valid business model within HOME, but flabbergasted by the characters behind the "charities".

[wallywoo] 30/11/2022 16:34

M&G own 15.4% of home. Many bgt in the last few weeks. Liontrust nearly another 5%, in the last week or so.


Do poster's really believe that this is fraud when such a respected institutions owns such a lot here. Do you think they do so little due diligence??


This will bounce, despite the huge number of derampers on here. All looks like a fear bear raid to me.

[spectoacc] 30/11/2022 16:14

Here's a thought - does the total income HOME have received since they listed, exceed the amount they've indirectly paid out to the lessees?

[sunshine today] 30/11/2022 16:10

Re KF.

They were probably given the parameters.

[spectoacc] 30/11/2022 16:08

HOME claimed they "saved stamp duty" by buying this way, which is beyond hilarious when you think what it's been costing them.

Is the more obvious reason that it's easier for the selling co to gift the 12 months of rent to the charity, and kept it away from HOME's a/c's? And that the business model isn't viable without that?