Home REIT has lost more than £100m of investors’ money as it sells hundreds of assets at substantial discounts.
Since July the REIT has sold 345 properties at auction, equivalent to 14% of its portfolio. The sales have raised approximately £60m, before costs, and its investment manager AEW has plans to sell more.
But most of those properties have been sold at a two-thirds discount to the price the REIT originally paid for them.
In total the gap amounts to more than £115m, or 15% of the £740m it raised from investors.
The REIT, which was set up in 2020 to invest in housing for the homeless, has been forced to sell properties to shore up its balance sheet after receiving barely any rent from tenants for months.
Its shares have been suspended since the start of the year at 38p, giving the REIT a market cap of around £300m.
Last year its accountant, BDO, refused to sign off its accounts after Home REIT was accused of significantly overpaying for properties by short-seller Viceroy.
The REIT initially denied the accusation. It still maintains that the properties were acquired on the basis that they had long FRI leases in place and offered good quality accommodation.
However, it has since accepted that it had not only paid over the odds for properties, but also that a number of its major tenants were not able or willing to pay rent. Some of those, including Supportive Homes and Gen Liv, which together were responsible for more than 20% of the REIT’s annual £50m rent roll, have since fallen into liquidation.
Last month, the REIT, despite taking back leases from tenants in default, reported that it had received just 18% of rent owed, or £700,000. However, this is a significant improvement on the 3% received for the month before.
This week, the REIT sold 153 properties at auction at an average of 35% of their purchase price. The properties, which represented 6.5% of its total portfolio, were sold for £24.3m. Two years ago the REIT paid more than £70m for them.
That followed sales last week of a further 14 properties for less than £9m, 51% below the £17m-plus the REIT paid for them.
In September, it sold a further 137 properties – 5.6% of its portfolio – again at a two-thirds loss. It raised £22.8m against a purchase price in excess of £70m.
Prior to that it sold 41 properties in early August for 40% of their original price, raising £4.85m against an initial cost of more than £12m.
The REIT has said the low sale price of the properties reflected the fact that they were vacant – in many cases the original tenant had gone into liquidation – and were in a poor state of repair. It added that wider market conditions had changed.
AEW was appointed in May to start the turnaround and announced that it would sell properties that were not deemed fit for purpose.
JLL has been appointed to value the estate, with its report expected at the end of the year. While the sales are of some of the worst of the REIT’s estate, the discounted prices do not bode well for the portfolio’s valuation.
Home REIT is also racking up costs incurred due to the valuation and inspection of its portfolio. It has so far spent £8.2m on professional advisers this year. Of that, £3m has been paid to JLL, Connells and Vibrant for valuation and inspections, £2m for legal advisers and A&M report, £1.8m for strategic advisers and £1m for advisers and additional audit fees in relation to its delayed 2022 annual accounts.
Home REIT declined to comment.
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