Home REIT PLC on Wednesday said that One (Housing & Support) CIC has agreed to surrender its leases on 100 properties.
Mears Group PLC, a housing and social care provider, has been occupying the properties on a sub-lease from One CIC.
Home REIT, a property investor focused on investing in a diversified portfolio of residential accommodation assets, will receive the sub-lease from One CIC via transfer.
Mears Ltd will then become a direct tenant for the remaining lease term of around 6.6 years with an initial contracted rental income of £891,155 per year.
According to Home REIT, the surrender agreement allows it to receive ‘a sustainable income stream from a strong tenant covenant’, and is expected to generate ‘significantly higher rent collection than has previously been received from One CIC in relation to the properties, despite a lower headline rent.’
Home REIT cited a previous rent of £1.2 million per year.
Home explained that the transaction is in line with AEW UK Investment Management LLP’s strategy as investment manager to stabilise the portfolio.
Home appointed AEW UK Investment Management as its property adviser in May, effectively replacing Alvarium Home REIT Advisors Ltd.
Home REIT in May said AEW would prioritise undertaking a ‘thorough’ review of its assets, in order to create a longer-term strategy for its portfolio. Further, AEW said it would prepare for a potential sale of some properties, and engage with tenants over issues with their properties, as well as other short-term requirements.
The former FTSE 250-listing has been rocked by scandals over recent months, including allegations of misleading shareholders.
The law firm Harcus Parker launched a claim against Home REIT in December, seeking compensation on behalf of the firm’s shareholders.
‘Companies that are profiteering from the social housing crisis at the expense of the vulnerable and homeless should be held to account,’ said Jenny Morrissey, a partner at Harcus Parker in December.
The lawsuit followed on from Home REIT’s ongoing dispute with Delaware-based Viceroy Research, whose report drove a share price slide that pushed the company out of the FTSE 250 index at the end of 2022.
Viceroy said that financial data proved many of Home REIT’s 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’.
In January 2023, Home Reit instructed Alvarez & Marsal Disputes & Investigations LLP to conduct an investigation regarding allegations of wrongdoing, including claims raised by short-seller Viceroy Research.
Alvarez & Marsal found that arrangements for the refurbishment of properties were not brought to the board’s attention by its investment adviser. It said that this meant the board was unable to consider whether a release of developer’s liabilities for refurbishment purposes was appropriate.
The accountants also found that the settlement of rent arrears and arrangements with tenants were not brought to the board’s attention.
Home REIT said that this lack of transparency ‘hampered’ its ability to assess the medium-term financial strength of its tenant base, and the ability of its tenants to pay sustainably pay rent.
On August 2, Home REIT said that two of its tenants have entered into creditors’ voluntary liquidation, allowing it the chance to re-tenant the properties or to carry out other asset management initiatives as soon as possible.
The two tenants are Redemption Project CIC and Serenity Support CIC. Redemption is a tenant of 152 properties in the company’s portfolio, making up 11% of rent demanded in June. Serenity makes up 1% of rent demanded in June.
Both of these tenants are non-performing, Home REIT explained, meaning that the creditor’s voluntary liquidation allows for it to re-tenant the properties or to carry out other asset management initiatives.
Home REIT shares were flat at 38.05 pence each on Wednesday morning in London, while Mears shares were 0.5% higher at 278.75 pence each.
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