FTSE-250 listed Home REIT describes itself as a “property company which invests in the provision of sheltered housing for homeless people throughout the United Kingdom”.
In a report seen by The Times, Viceroy Research raised doubts about tenants’ ability to pay rent, the prices Home REIT paid for some of its houses and the structure which determines how much the fund managers receive in fees.
Home REIT’s share price fell heavily on the report, dropping to just over 55p per share by 11.30am yesterday morning (23 November) from almost 76p per share.
Soon after the publication, Home REIT rebuked Viceroy’s claims as “inaccurate and misleading” and “based on mistaken assumptions, misinformed comments, and disputable allegations”.
The trust’s share price has bounced back somewhat following the rebuttal, to just over 64p per share at 11am today (24 November).
Short-sellers, including Viceroy, profit from falls in their target’s share price, a point Home REIT was keen to highlight.
Viceroy has built a 0.82% short position, equalling a bet of about £5m that Home REIT’s stock market value will fall, the Times reported.
In its 27 page report, Viceroy raised its concerns that most of Home REIT’s tenants “are relatively newly formed, [and] many have financials that cast serious doubt on their ability to service these leases. Some tenants do not appear to provide social housing at all”.
Home REIT has defended its business practices, saying its tenants are “robust”, such as charities and local councils, that rent properties, typically on 25-year leases, to house homeless people, including those who have just left prison or foster care or victims of domestic abuse.
But Viceroy argued “government funds and grants appear to be limited in nature” with most tenants. If rents keep rising, the charities will have to raise ever more money in donations to fulfil their lease obligations, which Viceroy believes may not be sustainable.
Viceroy also questioned the character of associates of Home REIT’s tenants, claiming they have faced allegations of fraud and sexual harassment.
Home REIT floated on the London Stock Exchange in October. Investors have invested £850m, which it has been spending to build a portfolio of almost 12,000 beds in houses and small blocks of flats that it has bought and renovated.