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FTSE 250 movers: Home REIT tumbles, Dr Martens steps forward

By Frank Prenesti

Date: Wednesday 30 Nov 2022

(Sharecast News) - FTSE 250: 19,196.08, up 0.05% at 1523 GMT.
Home REIT shares fell again after it published a full response to a scathing short-selling report from Viceroy Research on Wednesday, which saw its shares slide last week.

The FTSE 250 company addressed five allegations raised by Viceroy, saying it was "completely confident" in the integrity of the business it was operating, its financial soundness, and the beneficial impact it was having in reducing homelessness in the UK.

Viceroy's first allegation was that tenants "do not appear to be paying rent", "substantial quantities of Home REIT's rent will never be collected," and therefore "[this] is likely ... to [result in] substantial downwards revaluations of its investment properties".

Home REIT said in its response that its rent was ultimately supported by central government funding and the statutory duties of local authorities to house homeless people.

There were no overdue arrears in relation to amounts billed to 31 August, it claimed, supporting the independent valuations of its portfolio carried out by Knight Frank.

The second allegation saw Viceroy questioning the company's financials, and the use of straight-line rent revenue.

Home REIT said it was obliged, under IFRS accounting standards, to straight-line its rental income.

"The half-year report presents an adjusted cash earnings figure to provide complete transparency over the impact of the straight-lining adjustment," its board said.

"As a result, the suggestions that the Company has poor cash conversion are incorrect."

In its third allegation, Viceroy said the "financial data of Home REIT's tenants show that many cannot afford rent, have not been paying rent, are in administration, are run by bad actors, or simply do not provide social housing services."

Home REIT said all of its tenants provide social housing services, and reiterated that there were no overdue arrears in relation to amounts billed to 31 August.

It aid its investment adviser's due diligence exercises were adapted to each tenant, but included confirming the tenant's legal qualification to receive exempt housing benefit, in addition to reviewing financial statements, operational capabilities such as staffing levels, and their business plan and forecasts, so that they could meet their rent payment obligations as they fell due.

The firm said it took any accusation against the conduct of directors and trustees of its tenants "seriously", and would investigate any suspected wrongdoing, if required.

The fourth allegation was that Home REIT's investment adviser, Alvarium Home REIT Advisors, had a fee structure that was "poorly aligned" with shareholder interests, and "perfectly aligned" to commit fraud.

Home REIT noted in response that external management was a common feature of the UK listed investment trust and REIT market.

It said it had "one of the lowest" external management fees in the UK real estate investment trust space, with an effective rate of 0.79% on net asset value as at 31 August and no performance fee, incentivising "the on-target delivery" of all its key performance indicators.

Home REIT's net asset value is calculated by its administrator, Apex Fund and Corporate Services, using "the latest available" independent valuations provided by Knight Frank.

"Each of Apex, Knight Frank and BDO are independent of the investment adviser," the board said.

"There is therefore no 'alignment' whatsoever for fraud in the investment adviser's fee structure; on the contrary, it is designed to prevent fraud."

Finally, Viceroy's fifth allegation was that Alvarium had "systematically inflated" the prices of properties on the balance sheet.

The company said the total revaluation gain for properties purchased by the company between its initial public offering and 28 February was £43.2 million, equating to an average of 6.4% per property.

It said the revaluation gain was established by the external valuation process undertaken by Knight Frank as per the RICS valuation.

The board said the statements made by Viceroy "misunderstood" the process by which the company acquired its assets, "misinterpreted" figures derived from underlying special purpose vehicles, and relied on "misleading" HM Land Registry data.

"This is a business whose sole focus is on providing safe and secure accommodation to some of the most vulnerable in society, whilst generating shareholder value," said Home REIT chair Lynne Fennah.

"It is with deep frustration that the board is having to spend time and resources responding to these baseless and misleading allegations."

Shares in specialist media publisher Future reported a rise in full-year profits, driven by strong revenue growth and contributions from acquisitions, but said growth next year would be "modest".

The company on Wednesday said pre-tax profit rose 58% to £170m on revenue of £825m, up 36%. It expects "modest" earnings growth in 2023.

"The strong balance sheet and cash generation serve the business well for ongoing investment and growth and we are well-placed to add additional content and capabilities to further enhance the Future platform," Future said.

Utility Pennon Group fell after half-year profits tumbled after it was hit by higher costs.

The owner of South West Water and Bristol Water said underlying revenues in the six months to 30 September rose 9.3%, to £425m.5m, with return on regulated equity rising to 13.4%.

The FTSE 250 firm said revenues had benefited from growth in non-household demand, contract wins by Pennon Water Services and a full six-month contribution from Bristol Water, which Pennon acquired in June 2021.

But pre-tax profits slumped 74% to £20.9m, with adjusted earnings per share also down 74%, at 7.9p.

Pennon said profits had been hit by a surge in costs, as inflation and interest rates continued to mount. Financing costs jumped to £78.1m from £39.2m a year previously, while power costs were £49m, more than double last year's £24m.

However, Susan Davy, chief executive, said: "We're delivering robust fundamentals, executing our strategy and driving long-term sustainable growth.

"In the first half we've delivered record levels of investment to support a step change in environmental performance and build resilience for the longer term, having experienced the hottest, driest year since records began."

Pennon said it was increasing its investment in water resilience schemes by £45m, bringing total investment to around £75m.

South West Water is being investigated by regulator Ofwat for possible violations involving its wastewater treatment works. It is one of a number of water companies being investigated for making unpermitted sewage discharges in rivers and the sea. Pennon said it continued to work "openly, constructively and transparently" with the regulator.

Shares in Dr Martens gained on hopes China would lift Covid restrictions. The bootmaker has a factory in the country and its products are also popular there.


FTSE 250 - Risers

Dr. Martens (DOCS) 202.00p 5.76%
Trainline (TRN) 340.40p 5.48%
Elementis (ELM) 114.50p 5.24%
Wizz Air Holdings (WIZZ) 2,244.00p 4.37%
Molten Ventures (GROW) 391.80p 3.71%
Aston Martin Lagonda Global Holdings (AML) 129.35p 3.52%
Hochschild Mining (HOC) 71.35p 3.41%
Energean (ENOG) 1,471.00p 3.37%
PureTech Health (PRTC) 280.50p 3.31%
Quilter (QLT) 102.70p 3.24%

FTSE 250 - Fallers

Home Reit (HOME) 50.90p -8.78%
Future (FUTR) 1,394.00p -6.00%
Abrdn (ABDN) 193.00p -5.95%
Synthomer (SYNT) 134.10p -4.83%
Darktrace (DARK) 340.00p -4.47%
C&C Group (CDI) (CCR) 176.40p -3.18%
Marks & Spencer Group (MKS) 118.65p -3.10%
Supermarket Income Reit (SUPR) 104.50p -2.79%
W.A.G Payment Solutions (WPS) 77.30p -2.77%
Pennon Group (PNN) 914.50p -2.61%

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