Home REIT tenant surrenders 100 leases

Troubled housing provider Home REIT will take control of 100 property leases comprising 418 bed after tenant (Housing & Support) CIC (One CIC) agreed to surrender them.

Mears Limited, guaranteed by housing and social care provider Mears Group, has been occupying the properties on a sub-lease from One CIC. 

These sub-leases will now transfer to Home REIT, with Mears Limited becoming a direct tenant for the remaining lease term of  just over six years for an initial contracted rental income of £891,155 per year, shareholders were told on Wednesday.

Home REIT said the surrender agreement would give it a ‘substantial income stream from a strong tenant covenant’. 

It added that the agreement meant Home REIT was expected to generate ‘significantly higher’ rent collection than from One CIC for the properties, despite a lower headline line. The headline annual rent for the properties used to come in at £1,227,405 per year. 

It said: ‘The transaction is in line with AEW’s strategy as Investment Manager to stabilise the Company’s portfolio. The current occupiers of the Properties will not be impacted as a result of this transaction.’

Home REIT said it was continuing ‘work constructively’ with One CIC to find ‘sustainable solutions’ for the other 234 properties it currently rents from Home REIT.

The transaction reduces Home REIT’s exposure to One CIC from 13.5 per cent to 9.5 per cent by number of properties and 14.2 per cent to 11.9 per cent by contracted rent roll.

A probe by forensic accountants Alvarez & Marsal previously uncovered transparency and due diligence failings by former investment adviser Alvarium Home Reit Advisors. 

In May, Home Reit’s board announced that Knight Frank, its independent property valuer, had terminated its contract to provide valuation services to the group. Jones Lang LaSalle was appointed in July to replace the firm.

Last month, the group unveiled plans to seek shareholder approval to drop its social purpose investment policy during a two to three year stabilisation period devised by its new fund manager, AEW.   

This week, Home REIT investors waved through the dramatic change to its business model as it scrambles to keep itself afloat.

In a near-unanimous vote at a meeting at the offices of PR firm FTI in the City, shareholders approved a plan to remove the property landlord’s focus on owning housing only for vulnerable occupants such as the homeless.

Instead, the decision would allow it to invest in all kinds of residential property.

The strategy also allows the company’s investment manager AEW to restructure its portfolio and make its lease lengths more flexible.

Home REIT previously warned the changes were ‘urgently’ needed after it only collected 7 per cent of the nearly £8.8million of rent owed to it for the period covering May and June.

The overhaul of its investment ethos comes after the group sold some of its properties to raise cash and stay afloat, with some houses offloaded for more than 80 per cent lower than the purchase price.