Home REIT has finally published annual results to the end of August 2023, posting another large write-down in NAV.

The company reported that NAV fell 37.3% from £345.9m, or 43.76p per share (at 31 August 2022) to £216.9m, or 27.43p. We are still awaiting up-to-date results for the year ended 31 August 2024, which the board said should come by the end of March.

The decline in NAV between August 2022 and August 2023 was driven by:

• A decrease in fair value of investment property of £71.4m, reflecting the assessment of tenant covenant strength and the condition of the assets for new acquisitions;
• Provision for doubtful debts of £49.5m;
• Write-off of lease related assets of £31.0m;
• Write-off of remaining seller’s works of £14.2m;
• Recognition of a gain on revaluation of borrowings of £14.5m; and
• Dividends paid of £10.9m.

Details of gross mismanagement by Alvarium

The results sheds further light on the complete mismanagement of the previous manager Alvarium. The group’s portfolio had a market value of £412.7m at 31 August 2023, which represented 40.7% of the historic acquisition costs of £1,014.3m including purchase costs.

The valuation reflects the re-assessment of tenants’ covenant strength, several of which entered into liquidation either during or post-period end, as well as a re-assessment of the quality of assets acquired by the former manager during the period.

The assessment of the covenant strength of tenants and the condition of the properties as at 31 August 2023 resulted in 88.3% of the portfolio by number of properties being valued on a vacant possession basis for the 31 August 2023 valuation (the properties were valued on a vacant possession basis when a tenant was judged to be in poor financial condition (or worse) or when the property condition was judged to be very poor (or worse)).

8.0% of the portfolio was deemed inhabitable. Furthermore, the condition of the 2,033 properties that were inspected internally (from August 2023 to May 2024) 19.6% were deemed poor and 6.9% very poor (which is lower then the 8.0% inhabitable as the valuer was unable to gain access to some properties). Just 0.1% were assessed as very good and 9.3% as good, with the remaining 64.1% assessed as fair.

Of the 29 tenants (registered charities, community interest companies and other regulated organisations) that the portfolio was let to, 28 were considered of weak covenant strength.

In the annual report, the board states that Alvarium presented prospective acquisitions to the board, valuers and insurers as being high quality and suitable for homeless accommodation. Most of these properties, however, were acquired subject to vendor obligations to complete certain works (including significant improvements/redevelopment) to bring them up to standard. This needed board approval, which was never requested.

The vendors had a contractual obligation to make the necessary improvements within a specified period of time, however, there was limited recourse against the vendor if this was not completed and many did not. This resulted in a massive overpayment for the properties.

Post-period end sales

Since August 2023, the company has completed or exchanged on the sale of 1,622 properties for £244.1m, with the total gross proceeds from properties sold and exchanged in aggregate in line with the independent valuer’s (JLL’s) August 2023 and February 2024 draft valuations.

Board steps down

As previously announced, the remaining members of the original board – Peter Cardwell, Lynne Fennah, Simon Moore and Marlene Wood – had indicated that they would step down from the board upon the publication of the 2023 financial results and have therefore today stepped down from the board.

The remaining directors (that were appointed after the mismanagement came to light) will continue to serve on the audit committee (chaired by Rod Day), management engagement committee (chaired by Peter Williams, senior independent director) and the nomination committee (chaired by Michael O’Donnell, chair of Home REIT).