Home REIT report blames investment adviser for recent woes

An internal investigation by Home REIT has pinned most of the blame for its recent troubles on it former investment adviser. A detailed report by Alvarez & Marsal has been handed over to the board, which today announced that most of the blame lay with Alvarium Home REIT Advisors. But more details could come if the REIT chooses to look into “the existence of certain undisclosed potential outside business interests and undeclared potential conflicts of interest”, that were uncovered between “certain persons associated” with AHRA “and third parties”. Home REIT said that it “does not wish to prejudice its position in respect of any further action which may follow”, and as a result there was “a limit on the information that the Company feels that it is appropriate to disclose publicly”. AEW replaced AHRA as Home REIT’s investment advisers last week. The REIT said the investigation, launched on 16 February, concluded that a number of systemic issues “were not brought to the board’s attention by the investment adviser”. These include arrangements for the refurbishment of properties, which had led to a number of tenants withholding rents, and the settlement of rent arrears and other arrangements with tenants. Home REIT said this “lack of transparency on the part of the investment adviser hampered the board’s ability to assess the medium term financial strength of its tenant base and the ability of its tenants to pay rent to the company on a sustainable basis.” It added that the ongoing monitoring of tenants by AHRA was “limited”, while information the investment adviser provided to consulting firm the Good Economy, which helped compile the REIT’s annual impact reports, was “inaccurate”. It acknowledged that “certain allegations were made by third parties to the investment adviser about the affairs of the company which were not properly investigated nor brought to the attention of the board”. The REIT said that the A&M report had identified “certain situations” in which a settlement was agreed by a number of the company’s tenants and a key developer, “without the knowledge of the Board”, which would release the developer from any future liability to complete refurbishment works. It added that “in certain cases” the settlement amounts paid by the developer had not then been used to refurbish the property, but to settle outstanding rent arrears. Vitally, it adds that this happened “with the knowledge of the Investment Adviser”. It added that “A&M has identified a number of examples whereby refurbishment works have not been completed, leading to complaints by tenants and resulting in unlettable properties.” The REIT also defended its claim on 30 November that: “There are no overdue arrears in relation to amounts billed to 31 August 2022”. This was subsequently revealed to be untrue, as under a quarter of rents had in fact been paid. However, the REIT said: “Whilst this statement was correct at the time it was made, A&M has identified, through its investigation, a number of different methods used by the Investment Adviser to offset or clear outstanding rent arrears accrued by tenants up to 31 August 2022 which gave the appearance that rents were being settled in the normal course by tenants, but which were not from sustainable cashflow sources and were not paid or collected in the form of rent.” It added: “The Board had not approved, or been provided with information regarding these alternative arrangements to settle outstanding rent arrears.” But while the report has been handed over, this is unlikely to be the end of the investigation for Home REIT. “The board may decide to investigate some or all of these additional matters further, particularly if new information comes to light,” it said. “The board is still considering the conclusions and implications of the A&M report with its advisers, and what actions it may take in response to the matters raised by the A&M report. All of the company’s rights are therefore reserved.” To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews