Home Reit: ESG flag of convenience distracted from subsidence risk

Demolition jobs are rarely as effective as Viceroy’s attack on Home Reit. The short seller swung its wrecking ball against the UK social housing fund late last year. It alleged that valuations were inflated and many tenants were unable to pay rent.

The first claim was always going to be arguable but the second accusation is proving accurate. On Monday, tenants representing 18 per cent of rents filed for voluntary liquidation. Under a quarter of Home Reit rents were paid up to date at the end of last year.

Home Reit listed in 2020 with a plan to provide accommodation for the homeless. It was a perfect fit for the growing trend of ESG investing. But the promise of long-term, inflation-linked rental incomes and implicit government guarantees has since rung hollow.

Home Reit shares lost 70 per cent of their value in 2022. They were suspended in January pending an accounting investigation.

Lotus Sanctuary, which represents 12.5 per cent of Home Reit’s annual rents, is one of the charities now in liquidation. It stopped paying its rent at the end of last year. With some tenancy companies sharing the same founders, a domino effect of insolvencies is one possibility.

Viceroy highlighted outsized profits from transactions, which it alleged were artificially inflated for dealings in substandard properties. Home Reit denies wrongdoing but the National Crime Agency is investigating whether any bribery also played a factor.

Civitas and Triple Point are also UK-listed social housing landlords. They are under increased scrutiny. Their shares have lost 37 per cent and 46 per cent respectively since the start of 2022. Both are trading at discounts to net asset value of about half.

In February, Bluestar Group, emerged as a potential buyer for Triple Point. It had a prior relationship with Home Reits investment manager Alvarium. Independence looks shaky. Besides takeover now seems an unlikely end to this saga.

As they clamber from the wreckage, shareholders should ask themselves which other companies have glossed over weak financials with ESG credentials.