Home Reit said it was exploring options for its future as the trust continues to be plagued by rent collection issues.
In an announcement to the stock exchange, the trust said that only 23% of rent had been collected for the quarter ending 30 November 2022. Out of the £14.8m expected over the period, Home Reit only received £3.4m.
It also provided details on other problems the firm is facing. Property manager Simpact conducted a review of 67% of Home Reit’s portfolio and found 25% of properties require some level of refurbishment at a cost of between £15m-£20m.
The board said, in light of the report, it is considering all options “including the possible sale of the company”.
It also confirmed it had received an unsolicited takeover offer from UK-based investment firm Bluestar Group.
Home Reit chair Lynne Fennah said: “We recognise the serious issues facing the company and are examining all options to preserve shareholder value, and the interests of all stakeholders.”
Meanwhile, following the “unexpected” resignations of the trust’s brokers, Alvarium Securities and Jefferies International, Home Reit has appointed Smith Square Partners as financial adviser.
No signs of imminent resolution to its troubles
Oli Creasey, equity research analyst at Quilter Cheviot, said: “Unfortunately for shareholders, the situation shows no sign of imminent resolution, and may even be getting worse. The management team submitted a report to the company board, which highlighted that only 23% of rent due since the end of November had been collected. That figure would have sounded bad at the height of the pandemic, never mind during a more normal period of operation, and is even more concerning given funding for rent ultimately comes from the government.
“That funding passes through homeless charities before being paid to Home Reit as rent, and it isn’t clear why the money is no longer cascading down the chain. But until it does start flowing again, Home Reit has a real problem on its hands.
“The other issue facing the company is the costs of refurbishment. Capex spending is a frequent headache for Reits – who are required to pay the majority of income out as dividends, leaving little for reinvestment – and the report also highlights costs of up to £20m, as estimated by tenants, not something the company will be easily able to afford. It had £16m of cash on balance sheet as of February 2022.
Of the takeover offer from Bluestar, Creasey added: “The bid is likely to be all cash, but given the bad news that has been announced since the shares were suspended, we wouldn’t be surprised if a bid came in below the 38p historic share price. That would be an difficult outcome to accept for existing shareholders, but given the shares are still untradeable on the LSE and with no timeline for trading to resume, it may be the best option available.”
Bad assets and poor decisions
Today’s update comes against the backdrop of a number of allegations made against the firm in recent months.
In January, it emerged that property deals made by Home Reit were to be examined by the National Crime Agency amid allegations of wrongdoing. In response, Home Reit has instructed independent forensic accountancy firm Alvarez & Marsal to investigate.
The trust, which aims to provide social housing to alleviate homelessness while seeking returns for shareholders, first came under scrutiny during the final months of 2022 over concerns regarding its viability.
It faced allegations from Viceroy Research in November, which accused the firm of investing in “bad assets”.
In December, law firm Harcus Parker said it was launching a compensation claim on behalf of Home Reit shareholders, who alleged the firm had not followed its original investment philosophy while suffering significant losses.
The trust rejected the allegations, and announced it would undertake enhanced auditing procedures in a bid to reassure shareholders. As a result of these procedures, Home Reit was unable to publish its annual results within the four-month window required by the Financial Conduct Authority, leading to the suspension of its shares at the beginning of January.
On 30 January, it was put on notice by FTSE Russell, meaning the trust will be removed from FTSE indexes if its shares remain suspended for a further 20 business days after the notice was received.
Home Reit’s AGM is due to be held on 20 February.
See also: Scrooge-like short selling attack on Home Reit raises questions
