Investigation at homelessness investment fund reveals ‘undeclared potential conflicts of interest’ 

This followed a report from the previous month that a charity client of Home REIT had not paid rent for months amid a dispute over the quality of its properties.

Sharing the findings of the internal review in its latest stock market update, Home REIT summarised a number of key findings. 

It found that certain allegations made by third parties to its former investment advisor about the affairs of the company were not properly investigated, nor brought to the attention of the board. 

It also identified “certain undisclosed potential outside business interests and undeclared potential conflicts of interest as between certain persons associated with the investment adviser and third parties”. 

At the same time, some arrangements between the fund’s tenants and developers relating to the cost of refurbishing properties were not brought to its attention, meaning its board was unable to consider whether a release of a developer’s liabilities for the refurbishment of properties was appropriate. 

The investigation also found a number of examples where refurbishment works had not been completed, leading to complaints by tenants that resulted in unlettable properties.

On the settlement of rent arrears and arrangements with tenants, the report identified a number of different methods used by the former investment advisor to offset or clear outstanding rent arrears accrued by tenants up to 31 August 2022.

These methods gave the appearance that rents were being settled in the normal course by tenants, but which were not from sustainable cash flow sources and were not paid or collected in the form of rent.

At the same time, there was little ongoing due diligence and monitoring of tenants after they were taken on. 

Home REIT said the investment advisor also provided inaccurate information to a consultancy that was commissioned to provide annual impact reports in 2021 and 2022.

The investment fund told the stock market: “Consequently, the board believes that this lack of transparency on the part of the investment advisor hampered the board’s ability to assess the medium term financial strength of its tenant base and the ability of its tenants to pay rent to the company on a sustainable basis.”

Home REIT’s board said it was considering the conclusions of the report and “may decide to investigate some or all of these additional matters further, particularly if new information comes to light”.

In April, the fund agreed to repay £30m in cash held in a restricted account to reduce the outstanding debt it owed to the lender from £250m to £220m.