With a little over a week before Home REIT’s suitor has to “put up or shut up”, questions are being raised about the financial stability of more of the REIT’s tenants.
Bluestar Group, which has links to the homelessness housing investor’s founding company and former investment manager Alvarium, has until 16 March to make an offer or walk away.
But earlier this week Gen Liv CIC became the second tenant to enter liquidation, following Lotus Sanctuary late last week. Between them the two tenants account for 18.5% of Home REIT’s rent roll. Investors fear that more tenants could follow, owing to the close links between them.
Since November there has been a “serious deterioration in rent collections”. A detailed review by Simpact Group, commissioned by Home REIT, revealed that only 23% of rent due for Q4 was collected. Of a £14.8m quarterly rent roll, £3.4m had been paid. After taking into account Lotus and Gen Liv’s share, plus the rent being withheld by Noble Tree in a legal dispute, that leaves almost £10m of rent unpaid by other tenants.
Home REIT said: “In addition, the rent forecast to be collected for the coming months is highly uncertain as the investment adviser [Alvarium Home REIT Advisors] deals with a combination of issues surrounding the tenants’ ability, or willingness, to pay.”
Tenants’ collapse
With the collapse of two of its tenants, part of the picture is made clear. But there is still much that needs explaining.
Gen Liv housed homeless people and vulnerable women at its 571 properties owned by Home REIT in the North West. Lotus Sanctuary grew from two houses in Wolverhampton in 2018 to become Home REIT’s largest tenant. By the time of its collapse, it accounted for 939 properties, equating to 12.5% of the REIT’s rent roll.
Lotus’s collapse came after it failed to be awarded exempt housing status, meaning that it could not receive social housing payments from the government. It had not paid Home REIT any rent since September last year. Last month, staff at several local authorities complained that they were “having issues” with the company.
Liquidators from Begbies Traynor were appointed on Thursday (2 March). They have written to all employees telling them their employment has been terminated.
Liverpool-based Gen Liv appeared to have strong credentials, despite only being founded in December 2020. Managing director Sarbjit Johal was previously managing director of Driven Solutions, which was an approved housing provider for Birmingham City Council.
However, Gen Liv’s last accounts, to December 2021 but only filed last month, showed that it had £1.35m of cash but £1.76m of debt falling due within the year.
The statement also showed that it had £64m of leases on its books. Some £3.28m of lease payments, under non-cancellable operating leases with Home REIT, were to fall due within the year. Over the next four years a further £13m of rent was due, with more than £47m outstanding beyond five years.
In November, Home REIT said its investment adviser was able to “provide appropriate comfort that Gen Liv can afford its lease obligations”. FRP Advisory is now handling its liquidation.
Since Gen Liv’s collapse, Home REIT has said it is approaching other tenants to take on its, and Lotus’s, leases.
Investors are concerned that many of Home REIT’s other tenants may prove no more able to pay their dues. “Some of those tenants have only been in existence since Home floated,” said a confidential source close to several investors. They echoed criticisms previously levelled at the REIT. “They not only appear to share the same personnel, they seem to share the same structural weaknesses.”
Interconnectedness
The interconnectedness of the companies is well illustrated by Lotus. The company was controlled by Gurpaal Singh Judge. He was also a director of several of Home REIT’s other tenants. These include Redemption Project CIC, which, according to Home REIT in November, accounts for 9.1% of the REIT’s rents, and Eden Safe Homes CIC, which accounts for a further 2.2%, which all share a registered address.
Redemption Project was only founded in November 2020, shortly before it became Home REIT’s tenant. Its only filed accounts, from April 2022, show it has net assets of £4.5m, but accruals and deferred income of £4.3m.
Home REIT dismissed the connection between the organisations, stating: “The fact that the tenant’s registered office was previously used by other businesses is irrelevant.”
Home REIT’s IPO prospectus tells investors that no one tenant will ever have responsibility for more than 15% of leases. But in its attack on the REIT, short seller Viceroy Research said the claim that the tenants were separate entities was “a technicality” and that Judge essentially held more than 25% of Home REIT’s leases. Indeed, Judge was reappointed a director of Redemption in January and is listed as a “person with significant control”.
Further links
Links that require an explanation from Home REIT and other parties also exist with Gen Liv. Despite Johal being its managing director, the company was set up by chief executive Matthew Lynch. Within days of the company being set up, Lynch ceased to be a “person with significant control”, with control passing to his father, Stephen Lynch, a former headteacher, and Johal the same day.
Matthew Lynch also owns Morley Road SPV, a small developer, with his brother, Timothy.
Timothy Lynch is co-founder and director of Pathway Homes, from which Home REIT acquired a portfolio of 28 properties in February 2021.
Pathway Homes is registered to an address in Southend-on-Sea, Essex, but its “person of significant control”, Wini1 Ltd – again controlled by Timothy Lynch – is registered to the same address as Gen Liv.
That address, 116 Duke Street, Liverpool, is the office of Cobham Murphy, a firm of accountants. Home REIT previously said the only reason Pathway and Gen Liv were connected was because of the shared accountant.
However, that address is also the registered address of Supportive Homes CIC, which was listed as Home REIT’s second-largest tenant in its rebuttal of Viceroy’s claims in November.
At the time it accounted for 10.4% of the REIT’s rent roll, some £3m pa, from its 1,020 beds in the North West of England.
Home REIT’s other tenants are interconnected as well, with property developer and Liverpool councillor Peter Mitchell tied to three of them: Big Help Project, CG Community Council and Dovecot – accounting for 18.6% of rents.
“Nothing unusual”
Home REIT said there was nothing unusual about the shared personnel. “This is common practice and the company refutes strongly that it represents a manipulation of its investment restrictions around tenant concentration. This is an example of tenants sharing best practice ideas and resources with industry experts to apply their experience across multiple charitable projects, delivering a superior outcome for residents.”
However, investors are asking questions, especially in the light of the potential offer from Bluestar. The “unsolicited approach” that Home REIT advised investors of on 16 February was made by a previously dormant company, founded and owned by Benoit Gotlieb, who previously worked for Alvarium Investments, which set up Home REIT.
Gotlieb is also a director and majority owner of Bluestar Advisors. The other 40% is owned by Alvarium Re. Its other director is Jonathan Elkington, who is Alvarium’s head of private real estate.
And, according to papers filed at Companies House, Elkington was a director of Alvarium Home REIT Advisors until 6 February 2023.
Alvarium Home REIT Advisors was handed a $23m (£19.4m) promissory note by Alvarium to perform a management buyout on 4 January, just as Home REIT suspended its shares.
“Questions need to be answered about the web of connections,” said the source. “Home REIT needs to prove that there is nothing untoward going on.”
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