16 February 2023
If you are covering Home Reit’s, market update about a possible sale, please see comment from Oli Creasey, equity research analyst at Quilter Cheviot:
"Home Reit shares were suspended from trading at the beginning of 2023, following a short selling attack that left the share price at 38p, and with management delaying the annual report publication in order to address the short seller’s claims.
"Unfortunately for shareholders, the situation shows no sign of imminent resolution, and may even be getting worse. The management team submitted a report to the company board, which highlighted that only 23% of rent due since the end of November had been collected. That figure would have sounded bad at the height of the pandemic, never mind during a more normal period of operation, and is even more concerning given funding for rent ultimately comes from the Government. That funding passes through homeless charities before being paid to Home as rent, and it isn’t clear why the money is no longer cascading down the chain. But until it does start flowing again, Home has a real problem on its hands.
"The other issue facing the company is the costs of refurbishment. Capex spending is a frequent headache for Reits (who are required to pay the majority of income out as dividends, leaving little for reinvestment), and the report also highlights costs of up to £20m, as estimated by tenants, not something the company will be easily able to afford (it had £16m of cash on balance sheet as of Feb-22).
"The company is now discussing sale of the business as a possible exit strategy, and has received an unsolicited approach from Bluestar Group, who now have a month to firm up that bid or walk away. The bid is likely to be all cash, but given the bad news that has been announced since the shares were suspended, we wouldn’t be surprised if a bid came in below the 38p historic share price. That would be an difficult outcome to accept for existing shareholders, but given the shares are still untradeable on the LSE (and with no timeline for trading to resume), it may be the best option available."
