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Home REIT – No place like Home REIT… thankfully

November 23, 2022 – Home REIT (LSE:HOME) acquires “B&B” accommodation assets and rents them out to charities, housing associations or community interest companies in the UK. Viceroy’s investigation of Home REIT’s investments and tenants suggests significant downside.

Poor operating results are already reflected in Home REIT’s financials, however management incentives are not aligned with “fixing” these problems, but only rolling up more bad assets.

  • Several of Home’s largest tenants, including Dovecot and Princess Drive do not appear to be paying any rent. Financial accounts show zero outflow, and charity activities do not appear to include social housing.
  • Publicly available charity financials show that many of these charities may not have the ability to service these leases on a long-term basis (Home REIT purported ~25 years).
  • Despite claims to limit exposure per client to 15%: Home REIT’s largest clients all appear to share the same office and are run by the same people.
  • Home REIT’s accounts receivables are sitting at 70+ days as at HY 2022, with no impairments recorded. A review of various tenant leases lodged with HM Land Registry show payment terms are consistently 30 days.
  • Home REIT also claims to adopt a straight-line revenue model where substantial portions of rent are collected in the back-end of the 25-year lease terms.
  • Given our review of Home REIT’s tenants, we do not believe these amounts are collectable.
  • Viceroy Research has pulled transaction records for every single Home REIT investment property. Some appear to have been flipped between tenants in a short space for immense profits and no evidence of capex.
  • Government records show many Home REIT properties were acquired at an inflated price thereby artificially inflating its NAV. Other property portfolios display unreasonable appreciation over a short period of time.
  • Home REIT outsources management to Alvarium, who is compensated on a percentage of NAV and is responsible for asset acquisitions.
  • This model does not align Alvarium’s compensation with the performance of the portfolio, only with how much they spend and creates substantial audit risk in the revaluation of Home REIT’s book, and encourages risk-taking behaviors such as leverage.

Home REIT’s tenants raise questions about the financial viability of Home REIT’s portfolio, and also about the appropriateness of this venture. We strongly believe that these are not the people who should be entrusted to look after the vulnerable, nor should they be entrusted with your taxes to do so.

This industry is nascent, subject to limited oversight, and has begun breeding a plethora of for-profit vultures who have limited ability to actually run a charity or social enterprise.

Scrutiny in these industries should be encouraged.

Viceroy Research is short Home REIT.

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