Scottish Widows facing millions in losses over Home REIT loan

The growing crisis at property company Home REIT could saddle Scottish Widows with tens of millions of pounds of losses.

The Edinburgh-based insurer, owned by Lloyds, granted Home REIT a £130 million loan in December 2021 which the company said would be ‘instrumental’ in supporting growth plans.

Home REIT buys up properties and then lets them out to charities, housing associations and community groups, which provide accommodation for the vulnerable.

The 15-year loan from Scottish Widows is interest-only, meaning the firm is only obliged to pay back the interest, which was just over 2.5 per cent a year, until it is due to repay the capital at the end of the term.

But with Home REIT now in crisis, the risk of default is rising, which could leave Scottish Widows with few options to recover the funds.

One possibility would be for the insurer to take possession of properties from Home REIT’s vast portfolio up to the value of the loan.

But this could be difficult if allegations, denied by Home REIT, that it massively overpaid for many of the houses on its books turn out to be true, meaning their value could be much less than originally thought.

Another issue is the fact many of the properties are already housing vulnerable people, leaving Scottish Widows in a moral quandary about whether to sell the buildings and run the risk of the new owners turfing out the occupants. ‘Scottish Widows is facing a dilemma – either it works with the company to address its debt position or it calls in the loans and . . . suddenly acquires a large social housing portfolio,’ said Jennifer Morrissey, partner at law firm Harcus Parker which is representing shareholders in a claim against Home REIT.

She added the lender would be faced with the ‘huge responsibility’ of having to work with the vulnerable people living in the properties ‘to ensure they are not made homeless’ in the event of Home REIT’s collapse. Scottish Widows were contacted for comment

A mounting series of lawsuits is the latest crisis to hit Home REIT after short seller Fraser Perring launched an attack on the firm’s business model in November.

The company is locked in disputes with several major tenants who have withheld payments in protest against the conditions of some of the properties.

Trading in its shares has been suspended since the start of the year after the firm failed to publish results on time.

A forensic accountant has been brought in to investigate allegations of wrongdoing.

A boardroom coup is under consideration with Perring saying he has been approached by investors who want him to take charge of the company and turn it around.

The firm has also been targeted in a takeover swoop by London-based investment firm Blue Star Capital, which made an unsolicited offer for the firm.

Its bid vehicle, Bluestar Group Limited, is controlled by director Benoit Gotlieb.

He is involved in running Bluestar Advisors, which is part-owned by Alvarium, the investment firm that originally set up Home REIT.

The connection has been met with scepticism by some investors who believe the bid is being used by Home REIT’s board to avoid answering uncomfortable questions about its situation.

Home REIT declined to comment.