Homeless accommodation provider Home Reit (HOME ) has made unhappy progress in its stabilisation plans as a new valuation marked the portfolio at 60% less than shareholders had previously been told.

Jones Lang LaSalle, the company’s property valuer who was appointed in July this year, conducted external inspections of 97% of the portfolio and almost 200 internal inspections.

It combined its findings with preliminary results from Vibrant, which was appointed to inspect properties and report on their conditions and Countrywide, which is reporting on the required repairs and refurbishments, who had undertaken a combined 884 internal inspections.

The results showed that at the end of August the company had 2,473 properties worth £412.9m, a 42.2% reduction from the £977m unaudited historical acquisition cost.

Including total borrowings of £198m at end-November 2023 and a cash position of £16m, the portfolio valuation implies net assets of £230m, or 30%.

‘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 said in a stock exchanged announcement on Wednesday. ­

Jones Lang LaSalle valued 88% of the properties at the end of Augst as vacant, over double the 39% it considered vacant a year earlier.

HOME added the ‘comprehensive inspection programme has also led to a significant re-assessment of the quality of the property assets’. It has found that many properties need ‘extensive renovation’ before they can be occupied and some need to be ‘reconfigured to provide an appropriate number of rooms to suit the local market’.

Lynne Fennah, chair of Home REITT said the board was ‘extremely disappointed’ by the reduction in value 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,’ she added. ‘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.’

Shares of HOME remain suspended as the company works to publish annual and interim results.  The board said it and the investment manager, AEW, are continuing to work ‘at pace’ to publish the audited results, which requires the completion of the valuation process, internal inspections and revised accounting policies.

Peel Hunt analyst Thomas Pocock said the announcement ‘may provide some comfort to shareholders that there remains value in the property portfolio’. 

AEW evidence and action

AEW, which replaced Alvarium as fund manager in May, has also been undertaking a review of the property and found that a ‘larger than expected proportion of the portfolio is private rented sector rather than homeless accommodation backed by exempt rents from local authorities’.

However, the company added ‘occupiers of these properties could meet the criteria of broader social use, as defined in the current investment policy, based on the location of the properties and the type of accommodation they provide, but this remains to be determined over the stabilisation period’.

The investment manager is ‘pursuing all strategies available to the company’ in order to realise value in the portfolio, including taking legal action on selected tenants that are ‘not engaging constructively and continue to withhold payment of rent’.

AEW has been active since its appointment selling numerous assets and in a separate announcement on Wednesday it said that it had held a series of public auctions over the last five days. These resulted in the sale of 80 more properties, representing 3.6% of the portfolio, for £16.2m - an average of 33% of the purchase price.

48 of the sold properties were subject to leases with tenants in liquidation and the majority of the overall portfolio were vacant and required significant money to be brought up to scratch.L