RUTH SUNDERLAND: Harm from unhappy Home REIT

Home REIT, a troubled property investment company providing accommodation for the homeless, has plenty of explaining to do at its annual shareholder meeting today.

Extraordinarily, this will go ahead without shareholders seeing the accounts, because the auditors are conducting an investigation and cannot sign them off.

I cannot recall a similar case in 30 years of financial journalism. The media is banned from entry, showing a contempt for small shareholders who could have read a report. Their holdings have plunged in value and investors are trapped as dealings have been halted by the authorities.

Home REIT is shaping up to be a proper fiasco. It is in dispute with tenants who are withholding millions of pounds in rents.

Accountants from Alvarez & Marsal have been brought in to investigate allegations of wrongdoing after a media report that the National Crime Agency is scrutinising property deals. Its plight has led critics to suggest the homeless accommodation sector may be facing a ‘Southern Cross moment’, a reference to the care home group that collapsed after a period in private equity ownership.

This mess makes it all the more important that the board, led by chairman Lynne Fennah, conducts itself with transparency.

Several large shareholders including investment giants M&G, BlackRock and Legal & General are likely to be at the meeting. Short-seller Fraser Perring, the head of Viceroy Research, whose critical report into Home REIT was the catalyst for its downfall, may also turn up.

There are plenty of questions requiring answers. These include information about how properties were valued and acquired, middlemen involved and fees paid. What due diligence was performed on the charity tenants which rented properties from Home REIT to check their ability to pay?

Tenants signed very long, inflation-linked leases, some of them lasting 25 years. These might have been appropriate for well-funded charities with a solid track record.

However, some of Home REIT’s largest tenants do not fit that template. One of those that has not paid rent due is Lotus Sanctuary, which was set up in 2018 by a former lettings agent named Gurpaal Singh Judge, now aged 29.

Why did Alvarium, the London wealth firm that was Home REIT’s fund manager, endorse a business model that was so fragile? And what connections, if any, does entrepreneur Benoit Gotlieb have with Home REIT?

Gottlieb controls BlueStar Group, which wants to take over the company. He is also involved with another entity, BlueStar Advisers, which in turn is part owned by Home REIT’s original backer, Alvarium.

Most importantly, what protections are in place for vulnerable adults housed in properties in the Home REIT portfolio if these premises have to be sold in a hurry?

The affair is a lesson that investors should not be too starry-eyed over ventures billed as socially responsible. There have been disasters in this zone in the past.

When Home REIT floated in 2020, investors were drawn in by its claims that it would help to tackle homelessness.

The float took place in the pandemic, when virtue-signalling about community spirit and kindness was at a peak.

Anyone who bought shares will now be disillusioned. When a company is dealing with the housing and care needs of vulnerable people, there is more need, not less, for a robust business model, good governance and transparency.