Exclusive: Home REIT investors push for sweeping tenant clear-out in rescue plan
A group of Home REIT’s top shareholders are pushing for a sweeping clear-out of its charity tenant base as part of emergency rescue plans designed to restore its rental income, City A.M. has learned.
The plans have been drawn up by Edinburgh-based RM Funds, a Home REIT shareholder, which last month launched a bid to take over the management of the firm’s sprawling housing portfolio and oust beleaguered investment adviser Alvarium.
Proposals circulated to Home REIT investors by RM Funds, dubbed ‘Project Casa’, reveal that the firm is now looking to gather shareholder support for a move to “re-tenant” its properties and call in housing associations to take on the leases, City PM has learned.
Over 20 of Home REIT’s top 30 investors – representing 30 per cent of its total shareholder base – have written to Home REIT’s board indicatively backing the plans, a source close to the proposal told City A.M., though they declined to give the names of the shareholders.
Home REIT’s rent roll has been decimated after a slew of its tenants have collapsed into administration or refused to pay in protest at the shoddy state of its housing. Two of its major tenants, including its biggest single tenant Lotus, failed earlier this month and wiped out 18 per cent of its total rental take.
The proposals put forward by RM Funds say that a move to re-tenant the firm with housing associations would see its rental income shored up and could allow it to survive as a listed firm.
“Housing associations are high quality (investment grade) counterparties. Where non-resolvable tenant defaults have occurred in the Home REIT portfolio, Housing Associations would be preferred partners to re-tenant properties, which are based in the respective geographic region,” the plans say.
In an update last month, Home REIT revealed it had collected just 23 per cent of rent, meaning that the vast majority of its tenant base could be replaced.
The nature of Home REIT’s 25-year index-linked leases will also need to be “redesigned to better balance the risks” and address concerns from regulators over the ability of Home REIT to properly house vulnerable groups, RM Funds said in the plans.
“Our proposal considers the process required to both collect housing benefit (including universal credit etc), and the process to exempt housing status, which from public disclosure appears to be an issue for Home REITs’ current and previous tenants,” RM Funds said.
RM Funds’ chief Pietro Nicholls has said previously that his firm’s experience in property litigation would also help Home REIT navigate the scandals that have emerged since November.
Among the other proposals tabled by the firm are plans to appoint “separate providers” to oversee the portfolio, as well as a “regional asset management” strategy.
One Home REIT tenant told City A.M. that they would be “happy to work with any new investment adviser to find solutions to the issues facing their properties” but questioned whether housing associations would be willing to take on the properties given their dilapidated state.
The fresh revelations come after Home REIT said yesterday it was considering appointing a new investment manager to replace Alvarium, as well as whether “material changes to its investment policy are necessary or advisable at this stage to continue as a listed company”.
The firm also this morning extended a deadline to consider a potential take-private offer from bidder Bluestar Capital, founded by a former employee of Alvarium.
Suggestions of a replacement investment manager have been met with some anger from the firm’s smaller investors. One shareholder told City PM yesterday the plans to replace Alvarium were like “trying to replace the coach before the horses” and change at board level should instead be the priority.
Legal firm Harcus Parker said calling in a new investment manager was also an attempt to offload blame.
“An intention to explore amendments to the investment policy and potentially engage a new Investment Adviser bypasses the question of accountability as to the viability and execution of the existing policy by those who were responsible,” Jennifer Morrissey, Partner at Harcus Parker, said.
“No clarity has been given, and either Alvarium seem to be trying to wash their hands of Home REIT or Home REIT of Alvarium.”
Home REIT declined to comment on whether its backed the plans tabled by RM Funds.
Shares in Home REIT have been suspended since the beginning of January after the company failed to publish its financial accounts before the end of the year, as auditor BDO did a deepdive into its books.
The firm’s value cratered by more than 70 per cent before the end of the year after an attack by shortseller Viceroy research sounded the alarm over the stability of its rental base