Shareholders seek compensation after Home REIT's portfolio value plummets

(Sharecast News) - Homeless accommodation group Home REIT said it is "extremely disappointed" with a material reduction in the estimated value of its portfolio after an audit wrote down valuations by nearly 58%, causing a significant number of shareholders to launch a claim against the business. Home REIT said that an audit by Jones Lang LaSalle valued the portfolio at just £412.9m as of 31 August, representing just 42.26% of the unaudited historical acquisition costs of £977m.

Meanwhile, Home REIT said it had sold 80 properties in auctions over the past five days, representing 3.6% of the portfolio by number, for £16.2m, which will be used to cut debt and provide working capital.

Shares in the company have been suspended from trade since January after a delay in publishing its annual report, amid allegations of financial misconduct.

"The reduction in the property valuation is principally a result of a re-assessment of the quality of the assets through the on-going inspection programme, and of the covenant strength of the tenants, several of which have gone into liquidation in 2023," the company explained.

In response to Wednesday's news, law firm Harcus Parker initiated a claim against the company and its former advisors on behalf of more than 250 of Home REIT's shareholders, including institutional shareholders, who are seeking compensation for losses on their investments.

Harcus Parker partner Jennifer Morrissey blamed the company's "failures to properly understand tenant covenant strength and the quality of the property assets".

"Over the last year, Home REIT, which had previously positioned itself as a vehicle to deliver tackle homelessness, has continued to sell off its properties at sizeable discounts to their purchase price. The company has repeatedly admitted that the board had little knowledge of the company's property portfolio, their condition, underlying occupancy, the tenants' abilities to meet rental payments, the standards of quality, safety and compliance," Harcus Parker said in an emailed statement.

Some 88% of Home REIT's portfolio is now valued on a "vacant possession basis, where a valuation has continued to be prepared on an investment basis, limitations on the duration of the income streams have been applied to account for the covenant strengths of the tenants, and the rent levels demanded under the leases".

"The board is extremely disappointed by the significant value reduction announced today which reflects the information that has come to light regarding the quality of the company's assets and tenants. This information is in contradiction to reporting provided to the board during these periods," said Home REIT's chair Lynne Fennah in a regulatory filing.

"The company reserves all of its rights in respect of the matters referred to in today's announcement and is still considering the conclusions and implications of the revaluation exercise with its advisers, and what consequential actions it may take."