The Lemon Fool

Dod101 wrote:Social housing does not strike me as a good investment, REIT or no REIT. I would not have touched this with a bargepole.

Jennifer wrote:One other concern is that their properties appear to have been valued on rents being received rather than the open market property valuation. If these were valued on open market commercial rents then the valuation could easily be 60% lower. This is probably very pessimistic but we have no way of ascertaining the true value of the property.

Home REIT notes recent press coverage regarding delays in the approval of exempt housing benefit applications to one of its tenants, Lotus Sanctuary CIC ("Lotus"), from local authorities, and comments around its viability as a going concern.

Lotus was founded in 2018 and provides over 2,000 beds in aggregate to house vulnerable people. As at 31 August 2022, Lotus represented 12.2% of the Company's overall rent roll, providing 939 beds predominantly to vulnerable women. As at 31 December 2022, the Company's properties let to Lotus were 55% occupied (by beds), inclusive of properties undergoing refurbishment.

As previously announced, all rent due to 31 August 2022 has been paid, with final payments for the August quarter received in October 2022. The Company confirms that Lotus has not paid any rent for the quarter to 30 November 2022. Historically, rent payments have been made between two weeks to two months post invoice date.

The Company is working constructively with Lotus to ameliorate the operational issues it is currently facing, including by providing advice from Simpact Group, which was recently appointed by Alvarium Home REIT Advisors Limited to accelerate a detailed ongoing review of the Company's portfolio. In particular, this advice is focused on increasing the levels of referrals to increase underlying occupancy levels and decreasing the time delay in regards to receiving approval for exempt housing benefit applications. It should be noted that following approval of an exempt housing benefit claim, the payment from a local authority is typically backdated to the initial date of the claim, including the amount due for rent, thereby assisting a tenant in clearing landlord arrears that may have accrued as a result.

Should Lotus not be viable as a going concern and, for example, enter administration or liquidation, the Company will seek to assign leases to alternative providers. In these circumstances, the Company notes its assets are rented at or around Local Housing Allowances levels and it has a successful track record in this regard with the assignment of the Circle Housing leases in November 2022. Alternatively, the Company could grant leases to local authorities or registered housing associations on a short-term basis to ensure continuity for the underlying residents.

As noted in the announcement made on 12 January 2023, the Company has witnessed a deterioration in its rent collection position, with a significant number of its tenants in arrears in regards to the quarter to 30 November 2022. The Investment Adviser, assisted by Simpact Group, is establishing the reasons behind this deterioration and the Company has issued a number of statutory demands to tenants this month. The Company does not wish to prejudge this legal process and will provide a further update to the market by mid-February when this process has concluded. At this point the Investment Adviser and Simpact will also provide the initial results of their detailed review of the portfolio and strategy to resolve these operational issues.

Redemption Project was incorporated on November 16, 2020, by Gurpaal Singh Judge of Lotus Sanctuary.
The company claims to have leased more than 113 properties in England, but its website has no contact
information, and the company does not appear in the media.

Accounts show current balance is largely made up of Accruals and deferred income.

Redemption Project’s address, Unit 10, Navigation Point, Tipton, is an industrial park that was also:
▪ The address for a volunteer assistant driver for deliveries under a listing made by Lotus Sanctuary
▪ The former address of GSJ Property Limited, a property company owned by Gurpaal Singh Judge

murraypaul wrote:From the Viceroy report, Lotus is also linked to the Redemption Project, which account for another 8% of HOME's rent roll, so expect that shoe to drop soon too.

Redemption Project was incorporated on November 16, 2020, by Gurpaal Singh Judge of Lotus Sanctuary.
The company claims to have leased more than 113 properties in England, but its website has no contact
information, and the company does not appear in the media.

Accounts show current balance is largely made up of Accruals and deferred income.

Redemption Project’s address, Unit 10, Navigation Point, Tipton, is an industrial park that was also:
▪ The address for a volunteer assistant driver for deliveries under a listing made by Lotus Sanctuary
▪ The former address of GSJ Property Limited, a property company owned by Gurpaal Singh Judge

murraypaul wrote:So so far:

- Lotus can't pay (12% of rent roll)
- Redemption Group is linked to Lotus (8% of rent roll)
- Noble Tree refuse to pay (4% of rent roll)
- Big Help Group refuse to pay (10.5% of rent roll)
- GC Community Council (5.5%), Dovecote and Princess Drive (6%) are linked to Big Help Group

That is almost half the rent roll either known to not be paying rent, or run by the same individuals who are not paying rent though other organisations.

The National Crime Agency is scrutinising property deals involving beleaguered social housing investor Home REIT, City A.M. has learned.

A number of documents have been handed over to the National Crime Agency, and City A.M. understands the agency is considering passing them on to the Financial Conduct Authority (FCA) and the National Investigation Service (NATIS), which investigates serious organised crime relating to the public sector.

City A.M. can also reveal that London-listed Home REIT, which invests in housing for the homeless, has also begun an internal investigation into payments made to a previously undisclosed third party as part of deals where the Home REIT appears to have significantly overpaid for rundown housing stock.

In response to questions from City A.M. about allegations of bribery in Home REIT property deals, Home REIT replied in a statement: “The Board became aware of the allegations late December 2022 and they are being fully investigated. The outcome is yet to be determined.”

‘We owe our landlord £1m in rent – but they’ve left us with substandard homes’

ReformedCharacter wrote:

‘We owe our landlord £1m in rent – but they’ve left us with substandard homes’

https://www.theguardian.com/business/2023/feb/07/we-owe-our-landlord-1m-in-rent-but-theyve-left-us-with-substandard-homes-noble-tree-foundation

RC

BullDog wrote:If this picture of a HOME REIT property in Nottingham is anything to judge their portfolio by, I can only say the short sellers are doing everyone a favour by exposing the short comings of the REIT management.

https://i.guim.co.uk/img/media/d562bd1f ... r=2&s=none

murraypaul wrote:- Lotus can't pay (12% of rent roll)

The biggest tenant of beleaguered property investor Home REIT is looking to offload its leases to other housing providers after warning it can no longer pay rent to the firm, City A.M. has learned.

Gurpal Judge, the chief of Lotus Sanctuary – which Home REIT says makes up 12.2 per cent of its rental income – told staff last week that the firm was struggling to secure so-called exempt housing status on many of its properties, a prerequisite for guaranteeing housing benefit payments, which was choking off its cash flow.

In an email seen by City A.M., Judge said: “As a result of [its failures to secure exempt housing status], Lotus’s financial position is worsening on a month-by-month basis and Lotus has now reached the stage where it is unable to continue to service payments due to landlords under the leases as and when they fall due.”

Update and Review of Strategic Options, Including Possible Sale of Company

Following the announcement on 19 January 2023, the Board has been working with its advisers on a number of critical workstreams which are summarised below.

This has been hampered by the unexpected recent resignations of its two brokers, Alvarium Securities and Jefferies International. Immediately following those resignations, the Board undertook a beauty parade for a financial adviser and appointed Smith Square Partners on Monday 13 February 2023.

The Board yesterday received a report (the "Report") from Alvarium Home REIT Advisors Limited (the "Investment Adviser") on rent collection and the operational performance of the Company's portfolio following a detailed review undertaken by Simpact Group ("Simpact"), a specialist social housing property manager engaged by the Investment Adviser. Simpact has completed its first period of engagement with the Company's tenants during January and February 2023. This has highlighted a serious deterioration in rent collections for the quarter to November 2022 and identified serious challenges in rent collection for December 2022 and January 2023. For the quarter ending November 2022, only 23% of rent has been collected, meaning that out of a £14,827,147 quarterly rent roll, only £3,401,615 has been paid. In addition, the rent forecast to be collected for the coming months is highly uncertain as the Investment Adviser deals with a combination of issues surrounding the tenants' ability, or willingness, to pay. It is not possible to quantify the future amounts of rent to be collected with certainty as the issues are not straightforward.

The Board understands that statutory demands have been served on seven of the defaulting tenants. The Company retains its right to forfeit leases of defaulting tenants, and should the Company choose to do so, it would not prejudice its ability to pursue arrears. The Board has asked the Investment Adviser, assisted by Simpact, to assess the impact of its report in terms of rental and capital values going forward.

The Report has indicated that, based on information provided by tenants for approximately 67% of the portfolio (by beds), approximately 25% (by beds) of this sample requires at least some level of refurbishment. The cost of refurbishing these properties is estimated to be between £15 million - £20 million. The Investment Adviser, alongside Simpact, is undertaking further reviews to verify these estimates that have been provided by tenants.

Vendors are contractually responsible for the refurbishment of properties, and so it is therefore hard to quantify the net exposure to the Company, however the Investment Adviser is working with Simpact to further investigate the full level of refurbishments required across the entire portfolio. The Investment Adviser notes that there is approximately £10 million of retentions held by solicitors which may become available to the Company if the required refurbishment works are not undertaken by certain vendors.

In light of this information from the Report, the Board is considering all strategic options including the possible sale of the Company with Smith Square Partners and its other advisers whilst at the same time not losing sight of the paramount importance of preserving shareholder value. In this regard, as required pursuant to Rule 2.4(a) of the Code, the Company announces that it has received an unsolicited approach from Bluestar Group Limited ("Bluestar") regarding a possible offer for the entire issued share capital of the Company. Any offer by Bluestar would likely be in cash.

Shareholders should note that there can be no certainty that an offer will ultimately be made for the Company, nor as to the terms on which any firm offer might be made. A further statement will be made as and when appropriate.

In accordance with Rule 2.6(a) of the Code, Bluestar is required, by not later than 5.00 p.m. (London time) on 16 March 2023, to do one of the following: (i) announce a firm intention to make an offer for the Company in accordance with Rule 2.7 of the Code; or (ii) announce that it does not intend to make an offer for the Company, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can only be extended with the consent of the Takeover Panel in accordance with Rule 2.6(c) of the Code and the requirement to make an announcement in accordance with Rule 2.6(a) will cease to apply in the circumstances set out in Rule 2.6(b) of the Code (if a firm intention to make an offer for the Company in accordance with Rule 2.7 of the Code is announced by another offeror prior to the deadline).

The Board has also noted media speculation of allegations of wrongdoing. The Board confirms that it instructed Alvarez & Marsal, independent forensic accounting experts, to investigate these allegations in early January 2023. This investigation is ongoing and it is not possible to confirm its outcome at this stage.

The Board continues with its advisers to engage with BDO for the purposes of finalising the enhanced audit of its accounts for the year ended 31 August 2022. The Company is also engaging with its lender, Scottish Widows.

Save for the payment of any distributions which may be required for the Company to maintain compliance with its obligations as a UK REIT, the Board has suspended the payment of quarterly dividend payments for the foreseeable future.

Whilst the Board will endeavour to be as open as possible at the forthcoming AGM, there will be a limit to what it can say due to ongoing investigations.

Lynne Fennah, Chair of the Board, said: "We recognise the serious issues facing the Company and are examining all options to preserve shareholder value, and the interests of all stakeholders."