Home REIT: We’ve no idea where our rent comes from
Beleaguered property investor Home REIT has admitted it has no idea how much rent it receives through government housing benefit payments despite saying its business model ultimately relies on them, City PM can reveal.
Home REIT, which invests in social housing for vulnerable groups, has come under siege from investors in recent weeks over the financial health of its charity tenants, many of whom have signed 25 year leases with little financial track record.
The former FTSE-250 firm recently defended the stability of its rental income against attacks from short sellers, claiming it is “ultimately supported by central government funding and Local Authorities’ statutory duty to house homeless people”.
However, City A.M. can now reveal the firm keeps no record of how much of its rent is actually covered by exempt housing benefit payments and how much is received via short term support from property developers, raising major questions over Home REIT’s grasp of its revenue stream and the ability of its tenants to service long-term leases.
On a call with investors on 7th December, heard by City PM, Home REIT bosses said they “can’t provide an exact figure” on the proportion of income received through government payments and how much was paid for by the charity themselves.
In a separate call the following day, the firm was unable to clarify the source of its rent and how much came from “provisional rent cover” provided by property vendors.
“The lease agreement that we have with the tenant entitles us to rent from day one,” Home REIT bosses said. “And whether that rent is received from rent cover or whether that money is received from local authorities coming across to us, we don’t have more visibility than that.”
The admissions come despite a funding diagram provided by Home REIT pointing to exempt housing benefit as the key source of rental payment to the firm.
The revelations pose major questions over the sustainability of Home REIT’s business model when some of its charity tenants are forced to service leases without rent cover from developers.
Law firm Harcus Parker also alleged last week that some of Home REIT’s properties had been rejected for “exempt accommodation” status and would not be applicable for exempt housing benefits at all.
A spokesperson for Home REIT claimed that once the properties are “stabilised” the “income comes from exempt housing benefit”.
“In the period of ramp up of the property when residents are moving in, some of the income may come from the pot of money contributed by the vendor of the asset,” they added.
The firm has faced a slew of attacks in the past weeks after a report from Viceroy Research on the 23rd November claimed its tenants “cannot afford rent, have not been paying rent, are in administration, are run by bad actors, or simply do not provide social housing services.”
The accusations have sent shares in the firm tumbling beyond 50 per cent and caused bosses to pull the publication of its full year results for auditors to do a further deep dive.
Home REIT announced on Monday that its investment adviser, Alvarium, and the board are undergoing a “thorough review of their diligence procedures” and enhancing its “tenant reporting requirements” with potential inclusion of “landlord protections clauses” in lease agreements.
The firm insists that all allegations made by Viceroy are “without substance”.