Home Reit Share Discussion Threads

[williamcooper104] 04/12/2022 15:34

Actually it's nuts Alverium could legitimately charge a development management fee on all capex (3.5-5%) and then sub-contract out the project management taking a decent profit for themselves That would be win/win - more fees for Alvarium, and development profits for HOME The - it's too difficult argument - nope it's not - it takes too long - nope didn't take the vendors long at all to build up portfolios

[spectoacc] 04/12/2022 15:30

That they've no idea on refurb is damning, as is the fact some of the flipping happened over weeks, so likely no refurbs whatsoever.

The only get-out for what are often comical valuations on purchase (and upgraded once on the books!) are:

(a) The valuations aren't in as what they paid, perhaps in as what they paid less the 12 month rent gift to the lessees? But how does that tie in with where the NAV is now? Seems too high.

(b) The valuations are based mainly on the income stream/long lease, which is the more likely.


If it is (b), they're stuffed - many of the lessees are ridiculously dubious IMO. HOME claim their rent is only 45% of the LA payments, but with the 1-4% annual increase, rocketing utility bills, voids, loads of repairs/maintenance, and bizarrely under-capitalised new charities (bizarre because, didn't they all get a year of rent up front?), the notion 25-30 year leases is laughable. Only the "bung" keeps the show on the road.

But I'm going over the same ground. Yes - the accounts will be interesting, BDO have had some shockers and will want to avoid another. Perhaps a 20p NAV mark-down and a "nothing more to see".

[williamcooper104] 04/12/2022 15:29

Note that KN haven't viewed any of the properties Have Alvarium/QS working for????? Given that the properties would have been let up/partially let up by sub-tenants, and a lot of properties were bought quickly; my guess is they probably haven't Cannot see any reason why HOME can't assemble/refurbish properties themselves/pay an external developer a DM fee to do so

[williamcooper104] 04/12/2022 15:25

Really ought to be the accounts published It's a simple business; there's not that much for BDO to look at; clearly longer it takes the more the share price likely to drift down on expectations of worst fears Large auditors now have their own valuation departments; so BDO will have their own surveyors going through the KN values Two issues likely to be difficult I'd guess being the transfer of lease obligations to One CIC, and the murkiness about sub-letting and what incentive was given to the any sub-tenant plus whether refurb works actually carried out/carried out to a reasonable standard

[spectoacc] 04/12/2022 15:19

All gone a bit quiet - shouldn't HOME respond to the VR response?

What happens next? Keeping an eye out for any director resignations, auditor, more charity lessees getting into difficulty, anything at all from Knight Frank, which is where IMO the bodies are buried.

[williamcooper104] 02/12/2022 08:09

FT lex Home truths about betting shares will fall https://on.ft.com/3EXxc4C Gift link for first three clicks

[williamcooper104] 02/12/2022 08:06

They were very clear on yesterdays call "no incentives given" I asked the question - "so the new tenant is paying a net effective rent c4 percent higher than the old one" (being 1 year on a 25 year lease, so One CIC by not getting the incentive are paying c4 percent more than Circle - of course didn't get asked Back door incentives, are of course incentives If those aren't disclosed to the valuer, if they have been made, then you are getting towards valuation fraud territory There is a strong whiff of rot; which is why the external manager should be changed

[spectoacc] 02/12/2022 07:28

Snippet from FT Alpha yesterday:


" To Viceroy, Circle’s entry into administration shows that Home Reit’s client base is fragile, and state support is illusory. Home Reit says the opposite, because in November the leases were transferred to another operator, One CIC, on the same rental terms.

One missing piece relates to social housing group Mears, which has sublet the Circle portfolio for ten years. Home Reit says the transfer required a kickback from an unidentified property developer 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 sublease to Mears.” The unanswered question is why, as Peel Hunt analysts highlight:

'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 sublease. Noble Tree, another tenant, also sublets to Mears, and it is unclear if similar issues exist here.'

Peel Hunt’s team is not convinced by Home Reit’s rebuttal around apparent conflicts of interest, particularly where charity directors are involved in property development, and questions the company’s choice of rent affordability measures. (“We note that the price per bed per week that Home Reit charges for refurbished homes appears to be circa 35 per cent higher than those charged by PRS Reit for new-build properties.”)"


That covers several points, but the main one is that the Circle/One CIC rent seems only to be affordable due to the bung coming from HOME, to the property co, on to the charity (and back to HOME as part of the rent!). That's only visible here because of the sub-letting to Mears & the situation at Circle - otherwise, we'd simply not have known.

The rot is deeper than just buying £450m of property for £900m.

[spectoacc] 02/12/2022 06:59

The joy of the market is that we can agree to disagree.

And agreed the value of something is different from the price paid - I buy a lot of cheap property, and curse the Land Reg letting the next buyer see what I paid. But I buy it cheap compared to the market, and then sell at market price. The co's that are selling to HOME buy at market price, then flog at more than double - Peterlee has the most market info and is damning.

The fact a co can sweep up auction properties to pass straight on to HOME is very different to eg a co who's owned them for 20 years selling them on. Because clearly, HOME could have bought them itself. The market price is what that co paid, not what HOME paid. Even the CapEx argument goes out the window when the holding period is only weeks.

The best yield I've ever bought on was 40%. I'd happily package that up for you and sell on at c.6% ;) But it was 40% for a reason.

Yes, HOME's business model doesn't fall apart after 12 months, it'll probably keep going for what, 5 years? Year 1 - don't have to pay a penny of LA rent over to HOME because they've already given you 12 months to pay to them. Then moving forwards, you've got that reserve (yr 1 rent) to last as long as it lasts & cover shortfalls/4% uplifts.

But - how come these charities don't appear very flush in their a/cs? Why do so many have crooks involved? Maybe they've all seen the light and want to help the downtrodden?

Circle - it's a lot more interesting than just "another charity took it over". HOME effectively pay part of their own rent, Circle is the canary, and the business model of constantly buying new properties has come to a juddering halt.

[retailgains12] 01/12/2022 23:02

Spectro, on your first point i think we will have to agree to disagree.

You're disgruntled by the fact they've bought something for £365k which someone else bought for £195k, and you see this as a bad reflection on Home. For me i think the price they've paid compared to what the previous owners paid is largely irrelevant as long as the purchase price still hits the target yield on cost. I doubt we will ever agree on this.

That said, if you happen to see any other properties with an annual rent of £28k which are going for £195k please do let me know as for that yield i'll be happy to overpay for it myself.

Regarding this point "..Charity backing.." - have you seen who's behind these charities? How long they've been going? What has happened already at Circle?"

Yes I have seen what has happened at Circle, and have you seen the impact that admin had on Home? Thats right - absolutely 0 impact as they just end up getting replaced by another charity, thats why the model works. With an inherent lack of homes there will always be another charity ready to take their place.


'- HOME's rent, at least for the first 12 months, is effectively part of the capital they paid to purchase the properties. Stop and think about that - the "100% of rents paid" is made up in significant part by HOME's own money. It's farcical.'

If your argument about this is that after 12 months Home is screwed as the charities don't pay, then why 2 years on is there still 0 rent arrears? The business started to deploy capital in Dec 20 so there has been at least a year where many of these charities will be out of the first 12 month window, and yet still not a single default. If however your view on this is correct then at least surely it shouldn't be long before everything starts to unravel and the house of cards comes falling down. Time will tell I guess.


- There's a reason yields are so high in sheltered housing, housing the homeless, housing refugees etc - it's intensely capital and labour intensive. Do the "characters" who've set up charities have any skill in it?

Do they have any skill in it - who knows i don't have time to vet every single charity employee, but if their entire charity is centered around homelessness i'd imagine they will learn pretty quickly. Do Viceroy have any skill in researching property companies? Clearly not as they don't even know about the basics of straight lining revenue under IFRS, but that doesn't stop you quoting their report repeatedly.

[williamcooper104] 01/12/2022 21:46

That's about same ball park I'm in If we start at what probably is alternative use value eg half of NAVThere's a plus for the long dated cheap debt There's a plus for, if rent is cut, then having proper covenants/FRI leases and minimal gross to net rent leakages There's a plus for you ought to be able to legitimately get away with a small premium to alternative use But - what if the EPCs are terrible and the refurbishment works haven't been done/poorly done, leaving big capex liabilities - so will be keen to hear what the company has to say further on this - what's clear is that they don't appear to really know - which is damming in and of itself

[williamcooper104] 01/12/2022 21:23

https://www.bbc.co.uk/programmes/m0018c0cWorth a watch - BBC Panorama programme about the developer SPV/Charity model - not one of HOMEs tenants but similar business model

[elbrus55] 01/12/2022 18:41

Exactly. The people who have bought unwanted properties and helped get them ready for homeless accomodation should be applauded. Their profits are well deserved and they are fulfilling a much needed social and economic purpose. I hope they can sustain a living from itm I wouldn't be very interested in buying cheap properties m developing them and selling them on for just a £15k profit a unit. There are easier ways of earning £15k a month. It may look good in % terms,.but in $ terms it is pretty rubbish - there are easier ways of earning just £15k a month.

[wallywoo] 01/12/2022 18:33

Normally Elbrus, I would agree with you. However, every now and then, reits take a big down turn and normally correct back up over the next 12 months or so. This was true after the covid news, for example.


Over the last few months reits have been hit with rapidly increasing interest rates, ldi pension crisis, recession and short seller attacks like this one. The scenario here reminds me of BUR, Burford. Made me a few quid then, and I believe the same here.


This is down 60% in just a couple of months. That brings /makes them interesting now imo and especially since there is no debt issues here. Just my take.

[retailgains12] 01/12/2022 18:26

Hi Specto

In response to your post, 'However, I note that's the only one you've disputed from that post ;)'

It was the only one i disputed because it was the only one where you could actually see what Home's property looked like inside, how many bedrooms it had etc compared to the other houses in the area, rather than relying on pure speculation.

You are sounding like a bit of a crazy conspiracy theorist at times E.g

RE the 144 birches road 'But that's not really the point - the point is that some SPV paid £195k for a £150k starting bid house, in the knowledge they could flip it & others on at huge mark-up to a mug buyer.'

Did they really buy it for £195k knowing that they could sell it to a mug buyer Home for More? Or rather did they just see an auction about to start with a crazily low guide price of £150k for a property which the listing itself even says has a current rent reserved of £17,856 per annum with two vacanct rooms? If I saw that i'd buy it for £150k myself regardless of whether there was a potential mug buyer down the road or not, not all bargains point to fraud.

Also, again I think you are still too fixated about the profits of other businesses within the proverbial property supply chain, and not focussed enough on the merits of what they are actually buying. This Auction listing you've provided states that two years ago they could have achieved a fully let ERV of £26,160 per annum. This is pretty much confirmed by the RNS yesterday - The average weekly rent per room of home properties in the west midlands from the RNS Yesterday is £90 a week (And could be as high as £119 a week as looks like a decent spec, but i'll keep using the £90 number instead). Therefore this property is likely generating c.£28k per annum which will rise by 1-4% per year.

We know that Home's properties have been revalued up 6.4% on average, so on that basis they likely purchased this property for c.£365k. Does a property being purchased at £365k when its generating £28k+ of rental income per year, increasing by 1-4% a year really sound fraudulent to you? To me, given the charity backing and low weekly rents that sounds like a buy which is perhaps a little high but by no means horrible or fraudulent, or warrants a halving of the share price.

You need to stop focussing on what others have bought and sold the properties for and asses them based on their future returns.

[elbrus55] 01/12/2022 18:07

This sort of asset is mainly suitable for investors who might otherwise have bought uk government indexed-linked gilts. (Eg. Pension funds, ISA holders,.non-residents with personal allowances etc.). These government index-linkers have a pretty awful yield, it doesn't take that much to beat them. There are good reasons why pension investors want similar assets.It is pretty hard to imagine why anyone would hold this stock for any length of me if they are a UK taxpayer.If you are investing with some other intention.... then why? Don't. Why did you buy this in the first place?

[george stobbart] 01/12/2022 17:23

Why is this one trading at a massive premium to actual NAV of 15p?

[elbrus55] 01/12/2022 17:21

10k every 5 years doesnt sound very much. Depends on the age of the property whether it is worthwhile upgrading..Does the council reimburse the £10k fee anyway? They pay for everything don't they?

[elbrus55] 01/12/2022 16:40

When I was a UK landlord in London i put 200mm of extra insulation in my loft. I didn't get a new EPC. The cost of the inspection/certificate anf time organising would have been more than the insulation. It cost very little - I put in my car and rolled it out myself. It makes you itchyz so need a shower afterwards.Would I have been better off if I paid for a new EPC? I am extremely doubtful the tenants cared. I am glad I spent a tiny amount of time and money to keep my tenants warm and reduce their bills. Glad I didn't waste money on an unnecessary EPC.

[williamcooper104] 01/12/2022 16:27

Exactly - new standard comes in force 2025 - every other REIT is reporting on it - and it will effect cashflows as will have to spend on each property to get to EPC C; often material amounts too (and yes there's an exemption but that's a whole world of pain of having to spend £10k every 5 years and reapplying for the exemption) It also matters as it goes directly to the competence, or rather lack of, of the manager; nobody undertakes a major refurbishment without getting to C (or ideally B) And to not actually know; just as they don't know what the refurb costs were..... It's amateur

[elbrus55] 01/12/2022 16:21

Why is EPC so important? It is a piece of paper with no direct impact on the cash flows to HOME. It also takes time to do the inspection and do th3 report.However,.there is a new higher minimum rating to be enforced 2025 which they will need to comply with, which could impact some properties.

[spectoacc] 01/12/2022 16:19

@Retailgains12 re #422 - you're right, I'd missed that it was a 4-bed and so not particularly comparable with my 2-bed examples.

However, I note that's the only one you've disputed from that post ;)

Your calcs should include some of the costs as being part of the capital cost IMO. The calculation on what it would mean for HOME's overall NAV if repeated across the portfolio should also include the gearing effect.

(On that point - did occur to me that perhaps HOME started out with legitimate purchases, and that only the later ones have been a fiasco? But see below).

This isn't about me saying a house is worth £80k, and you/HOME/Knight Frank saying no, it's worth £120k. It's more like me saying it's worth £120k if done v well, hasn't been trashed by tenants, and in a good market, and HOME/Knight Frank saying no, it's worth £300k. That's the sort of quantum we're talking.

Also! Look at this - if you read the VR report, or HOME's comical defence, no.144 Birches Head Road, ST1 6LN, is the main property mentioned, due mainly to VR misunderstanding the way Land Reg reported the sale price of the portfolio between SPVs.

HOME correct them, and go on to say it was bought by the selling co for £200k, and sold to them/valued by Knight Frank at £390k.

That's bad enough, but:



Google is the gift that just keeps on giving.



That was September 2020. Fully licenced, renovated HMO. In auction for £150k, bought pre-auction for £195k, a fairly knock-out offer.

HOME then bought it all of two months later & reckon it's £390k.

Same postcode - yes, only 3-bed, no HMO licence:


But that's not really the point - the point is that some SPV paid £195k for a £150k starting bid house, in the knowledge they could flip it & others on at huge mark-up to a mug buyer. Probably not quite back-to-backed, but not far off - 15th Sept auction, likely October completion, transferred on to SPV2, bought by HOME from SPV2 in the December.

Can only assume SPV2 was used to hide the amount really paid by SPV1 - you won't see no.144's selling price on Rightmove for eg. HOME are open in their response about paying £7.3m for a portfolio that was put together for £3.2m, but that in itself is damning.

No.144 ooks nice, don't get me wrong, and potentially very income-producing and not like the Peterlee junk - but. Clearly next to nowt spent on it (no need - and no time), with no clear reason for HOME paying (literally) double the price of 2 months earlier. And remember - that was an "enhanced" price due to SPV1 knowing they had a willing buyer.

[williamcooper104] 01/12/2022 16:10

On EPCs they've admitted they haven't got the info - which is really really poor management But have primrosed to get it