Matt Fearnley’s charity owes almost £1m in rent to its landlord – but that bill is likely to keep growing unless his long list of complaints ranging from black mould to leaking ceilings is addressed.
Fearnley, the chief executive of homelessness charity Noble Tree Foundation, has withheld several months’ rent from Home Reit, a London Stock Exchange-listed real estate investment trust, over what he says is £3.2m owed for repairs and insurance that have not been forthcoming.
“The model hasn’t worked for the tenants,” says Fearnley, whose charity manages 421 homes with 1,013 beds in Northampton, Newcastle, Birmingham, Coventry, Wolverhampton and London. “We’ve got properties that are unfit for people to live in and we’ve had to shut some of them down because they are just not right for anybody, let alone a vulnerable person.
“We’ve been promised an amount of money that hasn’t been delivered. We pay for refurbishments as best as we can, but we can’t pay for everything. Tenants are living in substandard accommodation.”
Home Reit was established in 2020 as the first London-listed property fund tackling homelessness, and had ambitions to grow into a £1bn fund and take 10,000 people off the street. Now, it has been embroiled in a ballooning crisis over rent arrears, and has fallen prey to short sellers that bet on falls in a company’s share price.
Its crisis mirrors wider problems across the listed property sector – spanning offices to shopping centres – as rising interest rates, working from home and the weakening economy pile pressure on landlords.
“City institutions like Scottish Widows and M&G bought into [Home Reit] because there was a nice social promise, and it’s worked in the United States,” says Fearnley. “But it only makes sense if you have a long-term relationship with the charities to make sure the tenants are looked after.”
Noble Tree faces potential court action from its landlord, but it is not alone in withholding rent. Home Reit’s biggest tenant, Liverpool-based Big Help Group, has also stopped paying rent, along with another major tenant, Wolverhampton-based Lotus Sanctuary, which is on the brink of collapse.
Home Reit has let 2,470 properties, with 11,861 beds, to registered charities and housing associations on leases ranging from 20 to 30 years.
Images provided by Noble Tree show two properties in Northampton in poor condition, one of which lies empty. The other one is occupied by a woman and her young son.
A spokesperson for Home Reit said: “Home Reit is shocked to learn of the state of disrepair at the property. When Home Reit acquired the property it was in fair condition although the building survey identified some areas that required addressing as part of the agreed refurbishment, and the company understood there was a plan in place by the tenant with the developer to undertake this.
“Home Reit has been trying to gain access to the property since August 2022 as part of our regular inspections and this has not been given. Now we have been made aware we are trying to find a solution to move the resident out of the property as soon as possible.”
The company, which counts Peter Cardwell, the talkRadio political editor and a former special adviser to Conservative cabinet ministers, among its non-executive directors, faces legal action itself from shareholders angered by the near-70% drop in the share price in the past year.
Home Reit’s shares were suspended on the first stock market trading day this year because the firm missed a deadline to publish its annual financial report. Accountants BDO have embarked on a deep-dive into its books, with “enhanced audit procedures”.
Home Reit says the funds Noble Tree is owed relate to a dispute Noble Tree has with the developer of the properties. (Noble Tree said both were responsible to the charity to provide good quality property.)
The firm has become a target for short sellers, including UK firm Viceroy Research, run by Fraser Perring. Viceroy Research previously took on Germany’s Wirecard, which later filed for insolvency amid a fraud scandal.
Globally, real estate is the most shorted business sector and in Europe, the second-most shorted sector, behind consumer services, according to Matt Chessum, securities finance director at S&P Global Market Intelligence.
Chessum says the most-shorted companies in Europe include UK shopping centre group Hammerson as well as Home Reit, along with the Swedish real estate company SBB and Luxembourg-based Adler Group. “I can’t see that changing anytime soon given rising interest rates.”
Viceroy Research has accused Home Reit of buying properties at inflated prices, and questioned the ability of charities to service 25-year leases. Home Reit rejected the claims in a detailed rebuttal.
Oli Creasey, equity research analyst at Quilter Cheviot, says: “The short-selling report makes a raft of allegations against the company, some of which don’t hold water, but others which could be very damaging.”
Home Reit recently said its investment adviser Alvarium had hired Simpact Group, which it described as a specialist social housing property manager, to help with rent collection and review the company’s portfolio and tenants. It said it was working with its auditor, BDO, to publish its delayed results “as soon as is practically possible”.
However, the appointment of Simpact has raised eyebrows. Simpact is run by its founder and chief executive Joseph Kahan, 31, and says it manages a social housing portfolio in England and Wales across more than 100 local authorities. It declined to provide further details on its portfolio. Simpact is the trading name of Krea Group Ltd, a company estabished a year ago that has one director, Kahan, and has yet to file accounts, according to Companies House.
Home Reit declined to comment. A spokesperson for Simpact says it has started reviewing the company’s portfolio, adding: “Simpact’s team of senior strategic housing advisers, former commissioners and care professionals is recognised for its track record in change management and operational experience in social housing.”
Concerns have also been voiced over other property funds including Civitas Social Housing, targeted by the short seller ShadowFall in 2021, and Triple Point Social Housing, which both provide housing to adults with complex care needs.
Charities such as Crisis and Women’s Aid and politicians are worried about the business model of Reits. The Regulator of Social Housing is concerned that Reits award long leases to their tenants, including inexperienced housing associations, which can lead to badly managed housing.
“We have been concerned for some time about the worrying growth in inadequate, poorly managed exempt accommodation, often driven by investment vehicles such as Reits,” says Matt Downie, chief executive of the homeless charity Crisis.
“Unfortunately, all too often we hear stories of people living in such properties who are living in unacceptable conditions, leaving people in vulnerable situations with inadequate support.”
Triple Point declined to comment. Civitas has rejected ShadowFall’s claims relating to acquisitions and leases, and says it haș made some changes: “Civitas’s latest fully audited results show that the Civitas model provides high levels of care (average 50 hours a week) and value for money to the taxpayer.”
However, ShadowFall, which does not have a short position in Home Reit or Civitas at present, still harbours concerns. Its managing partner Matthew Earl says the issues flagged in two open letters to the board of Civitas in 2021 “are storing up significant risk, not only to Civitas’ shareholders but also carry systemic risk to other stakeholders within the sector”. Civitas declined to comment on this.
Another critic is David Robertson, founder of The Boatman Capital Research, usually a short seller, which this time has bought shares in Home Reit to push for change in the leadership.
“You’ve got a number of macro factors that make this sector look troubled. You’ve got a decline in property prices, which is going to force these companies to re-evaluate their property portfolios,” said Robertson.
“You’ve got higher interest rates, which is going to increase their cost of borrowing and they are making most of these acquisitions with quite a bit of leverage, so you can see that higher rates would hit them quite hard. You’ve got governments squeezing spending, another round of austerity, and local governments are going to feel the pinch.”
Elsewhere in Europe, Luxembourg-based Vivion, which invests in offices and hotels in Germany and the UK, has been shorted by the American firm Muddy Waters Research, founded by Carson Block in 2010. Muddy Waters says that Vivion’s real estate portfolios are overvalued. Its claims have been rejected by Vivion.
“We are looking at situations where we think the companies are seriously broken,” says Block. “It’s depressing to see us [short sellers] being so demonised. I’m one of the few people in the market who are not spinning a happy story.”