(Bloomberg) -- The board of beleaguered property company Home REIT Plc, a UK landlord that specialized in providing accommodation to the homeless, will wind up the company and sell off its remaining assets after concluding efforts to stabilize it are too risky.
The decision, driven by a demand from Scottish Widows to repay a short-term loan by the end of the year, caps a turbulent period for Home REIT after it was plunged into crisis following the publication of a damning report into its governance by short seller Viceroy Research.
After replacing the company’s external manager and conducting a detailed investigation into the state of its portfolio, the board has concluded that shareholders will be best served by disposing of its remaining properties to repay debts, fund litigation and eventually return capital.
“Shareholders should be aware that the ability of the company to make distributions to shareholders will be constrained” while the company faces potential group litigation and an investigation by British watchdog Financial Conduct Authority, according to a company statement Tuesday.
At present, the board is unable to assess properly its ability to make distributions under the applicable legal requirements, it said, adding the company expects to retain capital to meet corporate costs and allow it to pursue legal action against those it considers responsible for wrongdoing.
Home REIT owed creditors £114.6 million ($149 million) at the end of June, down from £220 million previously, after completing a series of disposals. It has agreed to a further batch of sales, which will raise a further £24.5 million on completion, it said in the statement.
AEW Investment Management was appointed last year to take over the running of Home REIT after the company’s previous external manager Alvarium Fund Managers was terminated. That followed allegations made by Viceroy in 2022, questioning its business model and its ability collect rent from its charitable tenants. The company delayed its results, prompting its shares to be suspended, while rental collections subsequently plunged.
AEW has since conducted an investigation of Home REIT’s portfolio to assess the properties’ true condition and level of occupation, allowing it to commission revised valuations, which eventually will allow it to publish audited results that are now expected in August.
“The board has conducted a full review of the stabilization strategy and whilst it recognises that there is an opportunity to add value to the portfolio at a property level, it has concluded that this strategy faces considerable challenges,” it added. “These include a high fixed corporate cost base, required due to the REIT structure and as a result of the issues being dealt with by the company at this time, and the requirement for capital expenditure to drive an increase in rental value and valuation of the portfolio.”
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