Home REIT, the under-pressure UK property company specialising in housing for homeless people, has voiced its dismay after JLL provided its professional view on an updated valuation of 2,391 properties which shows values are worth less than half of what it paid for them.
Meanwhile, shareholders are livid as law firm Harcus Parker, which represents 250 of them, indicated Home REIT was going to be sued along with the former investment manager, Alvarium.
The campaigning law firm has sent a letter of claim to the two firms on behalf of the group of investors, which Harcus Parker said included some of the big institutional shareholders in the company.
Home REIT listed on the London Stock Exchange in October 2020 raising £240 mln in the process in what turned out to be the largest IPO of any investment trust that year. Shares opened for trading at 97 pence and climbed as high as £1.30 by January 2021. However, they subsequently slumped 70% to 38.05 pence by 3 January 2023 when trading was temporarily suspended after failing to publish annual results. Shares are still suspended coming up to a year later.
On Wednesday, a provisional report shows the 2,473 properties Home REIT still owns after offloading many, were acquired for £977 mln (€1.1 bn), but are worth just £412 mln. Also on Wednesday, the company disclosed it had sold a further 80 assets at a loss to reduce debt, which is on top of previous disposals.
Valuation job
In July, JLL was appointed to carry out a valuation of the portfolio as at 31 August 2022, 28 February 2023 and 31 August 2023 on the basis of fair value. In addition, the company announced that Vibrant Energy Matters Limited, a subsidiary of Connells Limited, had been appointed to inspect all properties and report on condition, and that Countrywide Surveyors, also a subsidiary of Connells, had been appointed to provide building surveys.
JLL has finished external inspections of 97% of the portfolio, and 195 internal inspections. The draft valuation has been given in accordance with the current Royal Institution of Chartered Surveyors' (RICS) Red Book Valuation - Global Standards.
But the figure has nevertheless been met with disappointment given the more than 50% downgrade.
Lynne Fennah, chair of Home REIT, said: 'The Board is extremely disappointed by the significant value reduction announced today which reflects the information that has come to light regarding the quality of the company's assets and tenants.'
'This information is in contradiction to reporting provided to the Board during these periods. The Company reserves all of its rights in respect of the matters referred to in today's announcement and is still considering the conclusions and implications of the revaluation exercise with its advisers, and what consequential actions it may take.'
'The publication of the company's portfolio valuation marks an important step in the stabilisation strategy and ongoing work being done to publish the company's annual results for the periods ending 31 August 2022 and 31 August 2023.'
She added: 'The company does not wish to prejudice its position in respect of any further action which may follow and so is unable to comment further at this time.'
Vacant possession basis
Home REIT said it acknowledged that there had been a 'very material reduction' in the valuation of the company's property portfolio with the August 2023 valuation representing 42.26% of the unaudited historical acquisition costs of £977 mln excluding purchase costs. 'The reduction in the property valuation is principally a result of a re-assessment of the quality of the assets through the on-going inspection programme, and of the covenant strength of the tenants, several of which have gone into liquidation in 2023.'
'The majority of properties are now valued on a vacant possession basis and where a valuation has continued to be prepared on an investment basis, limitations on the duration of the income streams have been applied to account for the covenant strengths of the tenants, and the rent levels demanded under the leases. In all cases, JLL has considered the rental value for the existing uses of the properties and Local Housing Allowance rates.'
'The comprehensive inspection programme has also led to a significant re-assessment of the quality of the property assets. This has resulted in many properties found to be in need of extensive renovation before they can be occupied or properties that may need to be reconfigured to provide an appropriate number of rooms to suit the local market. JLL has considered the quality of the assets in reaching its assessment of value.'
In addition, the valuation has been hit by a deterioration in the housing market and an increase in property yields following a rise in interest rates.
A website called Home REIT Claim has been set up by lawfirm Harcus Parker. The website alleges: 'Home REIT informed investors that it would invest in “high-quality homeless accommodation” and that its investment strategy will seek to “exclusively tackle homelessness”. However, we have seen evidence collated from public sources that appears to indicate that properties owned by Home REIT have been found by local authorities to be unsuitable for housing vulnerable individuals and have consequently been denied “exempt accommodation” status under the relevant housing benefit rules, and that others are being advertised by agents and on websites such as Zoopla and Spare Room for students and professionals and even on booking.com as holiday lets. The evidence we have seen suggests that the properties are being advertised for individuals who are not vulnerable and in need of care, support and supervision, and who consequently would not qualify for exempt accommodation under the housing benefit rules.'
AEW asset managmemt
AEW is also playing a significant part as it is conducting asset management initiatives. Home REIT explained initial evidence from AEW's ongoing asset management initiatives indicated a larger than expected proportion of the portfolio is private rented sector (PRS) rather than homeless accommodation backed by exempt rents from local authorities.
So AEW is trying to stabilise and assume direct control of the portfolio. Home REIT said it expected to quantify a higher proportion of PRS but is unable to provide definitive percentages yet.
The company added: 'It is worth noting however, that the occupiers of these properties could meet the criteria of broader Social Use, as defined in the Current Investment Policy, based on the location of the properties and the type of accommodation they provide, but this remains to be determined over the stabilisation period.'
As part of the stabilisation strategy, AEW has been undertaking a comprehensive review and data collection exercise of the property portfolio. Analysis of the underlying property condition is considered paramount as part of an exercise to determine suitability, capital expenditure requirements, and the prospects for income and capital returns prospects as it rationalises and re-tenant the portfolio.
'The valuation report for the August 2023 period is a key step in the stabilisation strategy, and AEW continues to make progress in obtaining control of Home REIT's assets in respect of non-performing tenants. AEW is pursuing all strategies available to the company including taking legal action on selected tenants that are not engaging constructively and continue to withhold payment of rent.'
The company summarised: 'The board and AEW remain committed to the restoration of trading in the company's ordinary shares and fulfilling Home REIT's mission of providing accommodation to vulnerable people as soon as is practically possible.'
