Shareholders progress lawsuit against Home REIT and Alvarium after portfolio revaluation

Harcus Parker said a letter of claim has been sent to the trust on behalf of more than 250 claimants, including institutional investors, who are seeking compensation for losses on their investments.

The firm noted the beleaguered trust has “repeatedly admitted” that the board had little knowledge of the company’s property portfolio, its condition, the underlying occupancy, tenants’ ability to meet rental payments or the standards of quality, safety and compliance. 

£564m written off as Home REIT portfolio shrinks 58% in revaluation

In a regulatory update today, the trust said the portfolio of 2,473 properties, as of 31 August 2023, was worth £412.9m, a reduction of £564.1m (57.7%) from the unaudited historical acquisition costs, excluding purchase costs.

The material reduction of £564m has been tied principally to a “reassessment of the quality of assets”, alongside the “covenant strength of the tenants”, many of which have entered liquidation.

“Home REIT now acknowledges that its property portfolio has been vastly overvalued due to failures to properly understand tenant covenant strength and the quality of the property assets,” said Jennifer Morrissey, partner at Harcus Parker.

“Despite it now being more than a year since many of these issues were raised, the company still does not appear to understand precisely where its rent is (or should be) coming from.

“A year on, the company is unable to tell what portion of their tenants qualify for social housing benefit, and has provided no clarity whatsoever on how the investors will be compensated for their losses.”

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Morrissey noted that while the shareholders’ questions “remain unanswered”, the firm is now awaiting a response from the company and Alvarium, which is now known as AlTi Global.

According to Peel Hunt, including total borrowings of £198m and a cash position of £16m, today’s valuation revelation implies net assets of around £230m.

“Whilst internal inspections continue and HOME’s advisers work towards publishing audited results, today’s announcement may provide some comfort to shareholders that there remains value in the property portfolio,” said Thomas Pollock, analyst at the firm.

‘Failings and mismanagement’

Richard Williams, property analyst at QuotedData, described the revaluation as “staggering”, suggesting investors have been misled regarding the state of the portfolio.

“Recent sales have been at huge discounts, but we were led to believe these were the worst in the portfolio,” he said. “This new valuation report shows that pretty much the whole portfolio is in a state of disrepair and the value of each property was vastly inflated.

“It is clear that the failings and mismanagement here is off the charts.

“The galling thing for investors is that the hundreds of millions they invested was supposed to be spent on doing good for the most vulnerable in society but instead was spent on run-down, unliveable properties.”

A Winterflood note on the update highlighted that, according to the last published accounts (for the six months to 28 February 2022), the stated portfolio valuation was £713.4m, comprising 1,585 properties. Today’s estimate dated to 31 August 2023 implies a 42% decline in value from this figure, despite an increase of 56% to the number of properties.

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Pietro Nicholls, portfolio manager at RM Funds, a Home REIT shareholder, said that while the announcement was disappointing, it was “not a surprise”.

“We anticipated a material reduction in valuation when performed on a vacant possession basis and highlighted this to the board back in Feb/March time,” he said.

“AEW’s task now will be to secure quality tenants to drive investment basis valuations, and or adjust the strategy to reflect the greater proportion of granular PRS and alternative use tenants.”

Home REIT chair Lynne Fennah said the board was “extremely disappointed” by the “significant value reduction” brought by the information regarding the quality of the trust’s tenants and assets, noting that the information was contradictory to had been provided.

“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,” she said.

QuotedData’s Williams added, that the new valuation report has left valuer Knight Frank with “serious questions to answer”.