Home REIT has released a full response to an attack made by short-seller Viceroy Capital.
The REIT, which invests in accommodation for the homeless, was forced to delay its results on Monday, after Viceroy accused it of misleading investors over its tenants’ ability to pay rent.
Home REIT chair Lynne Fennah said: “This is a business whose sole focus is on providing safe and secure accommodation to some of the most vulnerable in society, whilst generating shareholder value. It is with deep frustration that the board is having to spend time and resources responding to these baseless and misleading allegations.”
The REIT has issued a full rebuttal of all of Viceroy’s allegations. A summary is republished below.
• ALLEGATION 1 – The company’s tenants “do not appear to be paying rent”, “Substantial quantities of Home REIT’s rent will never be collected,” and therefore “[this] is likely… to [result in] substantial downwards revaluations of its investment properties”.
RESPONSE: Home REIT’s rent is ultimately supported by central government funding and local authorities’ statutory duty to house homeless people. There are no overdue arrears in relation to amounts billed to 31 August 2022, supporting the independent valuations of the company’s portfolio carried out by Knight Frank.
• ALLEGATION 2 – Viceroy queries the company’s financials and questions the use of straight-line rent revenue.
RESPONSE: The company is obliged under IFRS accounting standards to straight-line its rental income. The half-year report presents an adjusted cash earnings figure to provide complete transparency over the impact of the straight-lining adjustment. As a result, the suggestions that the company has poor cash conversion are incorrect.
• ALLEGATION 3 – The “financial data of Home REIT’s tenants show that many cannot afford rent, have not been paying rent, are in administration, are run by bad actors, or simply do not provide social housing services.”
RESPONSE: All of the company’s tenants provide social housing services. The company has addressed each of Viceroy’s accusations on a tenant-by-tenant basis. The company reiterates that there are no overdue arrears in relation to amounts billed to 31 August 2022. The investment adviser’s due diligence exercises are adapted to each tenant but include confirming the tenant’s legal qualification to receive exempt housing benefit, in addition to reviewing financial statements, operational capabilities (eg staffing levels) and their business plan/forecasts, such that the tenants can meet their rent payment obligations as they fall due. The company takes any accusation against the conduct of directors/trustees of its tenants seriously and would investigate any suspected wrongdoing, if required.
• ALLEGATION 4 – Alvarium Home REIT Advisors Limited’s (the “investment adviser”) fee structure is poorly aligned with shareholder interests and perfectly aligned to commit fraud.
RESPONSE: External management is a common feature of the UK listed investment trust and REIT market. Home REIT has one of the lowest external management fees in the UK REIT space, with an effective rate of 0.79% on NAV as at 31 August 2022 and no performance fee, which has incentivised the on-target delivery of all its KPIs. Home REIT’s NAV is calculated by the company’s administrator, Apex Fund and Corporate Services (UK), using the latest available independent valuations provided by Knight Frank. Each of Apex, Knight Frank and BDO are independent of the investment adviser. There is therefore no “alignment” whatsoever for fraud in the investment adviser’s fee structure; on the contrary, it is designed to prevent fraud.
• ALLEGATION 5 – “Alvarium has systematically inflated the prices of properties on the balance sheet.”
RESPONSE: The total revaluation gain for properties purchased by the company between IPO and 28 February 2022 is £43.2m, which equates to an average of 6.4% per property. This revaluation gain was established by the external valuation process undertaken by Knight Frank as per the RICS valuation. The statements made by Viceroy misunderstand the process by which the company acquires its assets, misinterprets figures derived from underlying SPVs and relies on misleading HM Land Registry data.
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