Home REIT, set up to invest in accommodation for the homeless and now likely to be wound down after years of troubles, has finally published its annual accounts for 2022.
The REIT posted a loss of almost £475m for the year to 31 August 2022, with net asset value per share more than halving to 43.7p.
The accounts had been delayed following a report and allegations from third parties including Viceroy Research, after which auditor BDO was tasked with undertaking additional audit procedures and Alvarez & Marsal began an investigation into allegations of wrongdoing.
Home REIT said the key findings of the investigation were that arrangements for refurbishment of properties, settlement of rent arrears and arrangements with tenants had not been brought to the board’s attention by then-investment adviser Alvarium Home REIT Advisors.
The company said in today’s statement that it had faced “unprecedented challenges”, including investigations into allegations of wrongdoing; tenant arrears and liquidations; a change in investment adviser; the suspension of its shares; a potential threatened group litigation action against the company and directors in office at the time that the shares were suspended; refinancing struggles; and an FCA investigation.
Chair Michael O’Donnell said: “Whilst the board is pleased to finally be in a position to publish the report and accounts, we share shareholders’ frustrations about the progress of the company.
“Despite substantial efforts to stabilise the business, the company continues to face extensive financial and operational challenges. Against this backdrop and reflecting the expected reduced size of the company’s portfolio, the board concluded that the best course of action to optimise remaining shareholder value is the managed wind-down. Our priority now is to optimise the value of the portfolio and maximise returns to shareholders, while keeping any disruption to residents to an absolute minimum.”
O’Donnell added: “It should be noted however that the fees incurred in defending the company against threatened litigation from a group of current and past shareholders will directly reduce the amount of capital ultimately returned to all shareholders and may impact the timing of any distribution to shareholders.”
The report gives new insight into the state of the REIT’s portfolio of properties let to charities, housing associations and community interest companies, which it has now been selling via auction for more than a year.
“Contrary to AHRA’s reporting to the board, post-period end investigations by [new investment adviser] AEW have determined… most of the properties acquired were not high-quality accommodation and most were acquired subject to seller’s works obligations,” said O’Donnell in his statement in the report, adding: “JLL, based on its own inspections and the work of Vibrant [Energy Matters] and others, has assessed the condition of 90.9% of properties as fair or worse.”
Further, AEW found the REIT had operated with “no reliable data” for monitoring underlying occupancy, and just half of properties in the portfolio as of August 2023 had been inspected and were considered occupied, with 13% unoccupied and the remainder either uninspected or had been inspected by a party that did not comment on their occupation.
“The majority of tenants were poorly capitalised and lacked long-term operating track records, or the benefit of local authority support,” O’Donnell wrote. “In some instances, for example single-family homes, the rent burden under the original lease was considered unsustainable based on the location, layout, use and condition of the property.”
The annual report said 12 tenants have now entered administration to date, representing 54% of properties and 62% of rent as of August 2022. Others have surrendered leases.
Home REIT has since issued a pre-action letter of claim to AHRA. “It remains important that all means of potential financial recovery are fully considered and that any wrongdoing is thoroughly investigated,” O’Donnell said.
The company now expects to publish its 2023 results before the end of this year. It will then be able to apply to the FCA for a restoration of its shares and trading on the London Stock Exchange.
Send feedback to Tim Burke
Follow Estates Gazette
