REG - Home REIT PLC - Update on Internal Investigation

Home ReitAnnouncement

30/05/2023 07:15

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RNS Number : 8839A  Home REIT PLC  30 May 2023

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30 May 2023

Home REIT plc

 

("Home REIT" or the "Company")

 

Update on Internal Investigation

As announced on 16 February 2023, the board of directors of the Company (the
"Board") instructed Alvarez & Marsal Disputes and Investigations, LLP
("A&M") as independent forensic accountants in early January 2023 to
conduct an investigation in relation to allegations of wrongdoing including
matters raised in the Viceroy Research report.

A&M has delivered to the Company a detailed report (the "A&M
Report") i  (#_edn1) . The A&M Report has been prepared from documents and
information (including emails and telephone messages of relevant parties)
provided by the Company, Alvarium Home REIT Advisors Limited (the "Investment
Adviser"), Alvarium Fund Managers (UK) Limited (the Company's alternative
investment fund manager, the ("AIFM")) and by other third parties, as well as
information derived from publicly available sources ii  (#_edn2) .

The Company reserves all of its rights in respect of the matters referred to
in the A&M Report and does not wish to prejudice its position in respect
of any further action which may follow. Accordingly, and mindful of its
obligations, there is a limit on the information that the Company feels that
it is appropriate to disclose publicly.

Key findings from the A&M Report are summarised below.

Arrangements for the refurbishment of properties were not brought to the
Board's attention by the Investment Adviser

The information reviewed by A&M indicates that some arrangements with the
Company's corporate tenants and developers relating to the cost of
refurbishment of properties were not brought to the attention of the Board by
the Investment Adviser, so that the Board was unable to consider whether a
release of a developer's liabilities for refurbishment of properties was
appropriate. In addition, although it is accepted by all parties that the
developer (from whom the Company acquires properties) is responsible for any
required refurbishment works, A&M has identified certain situations in
which a settlement was entered into by a number of the Company's tenants and a
key developer, without the knowledge of the Board, to release the developer
from future liability to complete refurbishment works. Where settlement
amounts have been paid by the developer pursuant to such arrangements, the
A&M Report identifies that in certain cases these settlement amounts have
been utilised by the tenants, with the knowledge of the Investment Adviser, to
settle outstanding rent arrears due from such tenants instead of being used to
complete refurbishment works, as described further below. In addition, A&M
has identified a number of examples whereby refurbishment works have not been
completed, leading to complaints by tenants and resulting in unlettable
properties.

Settlement of rent arrears and arrangements with tenants were not brought to
the Board's attention by the Investment Adviser

In its announcement dated 30 November 2022, the Company stated that, "There
are no overdue arrears in relation to amounts billed to 31 August 2022".
Whilst this statement was correct at the time it was made, A&M has
identified, through its investigation, a number of different methods used by
the Investment Adviser to offset or clear outstanding rent arrears accrued by
tenants up to 31 August 2022 which gave the appearance that rents were being
settled in the normal course by tenants, but which were not from sustainable
cashflow sources and were not paid or collected in the form of rent. These
methods included: (i) the Company receiving funds from developers as part of a
settlement payment in relation to a dispute in which the Company and the
Investment Adviser were not a party and which were subsequently allocated to
accrued rent arrears, (ii) the allocation of receipts from developers against
rent arrears due from tenants beyond the additional funding typically provided
by developers, usually representing 12 months of rent, to assist tenants where
the residential property may not be fully occupied, (iii) certain tenants
settling the rent arrears for other tenants, (iv) the retention of funds due
to be paid to developers to offset against rent arrears from tenants, and (v)
proposed additional or extended rent free periods being granted to tenants who
had outstanding rent arrears due to various reasons, including refurbishment
and capital expenditure costs, cash flow issues and disputes between
developers and tenants.

The A&M Report findings show that the Board had not approved, or been
provided with information regarding these alternative arrangements to settle
outstanding rent arrears.  Consequently, the Board believes that this lack of
transparency on the part of the Investment Adviser 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.

Ongoing monitoring of tenants was limited by the Investment Adviser

As part of its investigation, A&M undertook an exercise in relation to the
initial and ongoing due diligence performed by the Investment Adviser in
relation to a sample of the Company's tenants. As a result of this sampling
exercise, and based on the information reviewed, A&M concluded that,
although evidence of initial tenant due diligence, at the point of taking on a
new tenant, was present, there was limited evidence of detailed ongoing
monitoring of tenants being undertaken by the Investment Adviser.

Information provided to The Good Economy by the Investment Adviser was
inaccurate

The Good Economy ("TGE") is a consulting firm specialising in providing
advice, analysis and research to organisations seeking to improve their
social, environmental and economic impact. TGE was engaged by the Company to
provide annual impact reports in 2021 and 2022. The TGE impact report for 2021
was made available on the Company's website and key findings from the report
were referenced in the Company's annual report for 2021. The impact report for
2022 was not finalised or published.

The evidence reviewed by A&M indicates that inaccurate information was
provided, without the knowledge of the Board, by the Investment Adviser to TGE
in both 2021 and 2022, including inaccurate information about occupancy rates
for portfolio properties in the sample properties reviewed by TGE for the
purposes of their reports. In addition, TGE was informed by the Investment
Adviser that the Board was unwilling to allow TGE to carry out physical
inspections of certain identified properties. This matter was never discussed
with, or approved by, the Board who would have authorised full and
unrestricted access to the Company's properties.

The Board believes that these matters were likely to have had an impact on the
conclusions reached by TGE in their assessment of the Company.

Other matters

Other matters, in addition to those noted above, were considered by A&M as
part of its investigation, including some matters where no firm conclusion
could be reached on the basis of the information available to A&M. Such
other matters include information obtained by A&M which indicates that
certain allegations were made by third parties to the Investment Adviser about
the affairs of the Company which were not properly investigated nor brought to
the attention of the Board. A&M also identified the existence of certain
undisclosed potential outside business interests and undeclared potential
conflicts of interest as between certain persons associated with the
Investment Adviser and third parties. The Board may decide to investigate some
or all of these additional matters further, particularly if new information
comes to light.

The Board is still considering the conclusions and implications of the A&M
Report with its advisers, and what actions it may take in response to the
matters raised by the A&M Report. All of the Company's rights are
therefore reserved.

 

FOR FURTHER INFORMATION, PLEASE CONTACT:

 

 

 FTI Consulting (Communications Adviser)  HomeREIT@fticonsulting.com

 Dido Laurimore                           +44 (0)20 3727 1000

 Eve Kirmatzis

 Ellie Perham-Marchant

 Oliver Harrison

 

The Company's LEI is: 213800A53AOVH3FCGG44.

 

For more information, please visit the Company's website: www.homereituk.com
(http://www.homereituk.com/)

 

 i  (#_ednref1) The A&M Report is addressed to the Company and A&M
accepts no responsibility to third parties in connection with the A&M
Report. It is a legally confidential and privileged document and no
confidentiality or privilege in relation to the A&M Report is waived
pursuant to this announcement.

 ii  (#_ednref2) The A&M Report is based on information that has been
provided to, or obtained by, A&M in the course of its investigation and
which may not be complete or exhaustive. Therefore, it is important to note,
that it is possible that conclusions reached in the A&M Report may be
subject to change if additional information comes to light.

 

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