Scandal-stricken Home REIT is facing fresh calls for overhaul today after two tenants run by the same director collapsed into administration this year – with the future of a third still uncertain.
Home REIT revealed earlier this month that Redemption CIC, a Wolverhampton-based social housing group that made up around nine per cent of its rental take, had fallen into administration, making it the fourth tenant to fail this year.
The charity is also the second Home REIT tenant run by Gurpal Judge that has failed after Home REIT’s biggest single tenant Lotus Sanctuary called in administrators in early February.
City A.M. revealed in April that a third organisation run by Judge, Eden Safe, had also failed to pay its rent to the firm.
The revelations have triggered fresh calls from shareholders for an overhaul of governance at the beleaguered former FTSE 250 firm and warnings over the bypassing of rental limits by tenants.
“The issues at Redemption CIC, including the potential circumvention of counterparty limits (set at 15 per cent), RM funds warned the board about circa five months ago,” Pietro Nicholls, chief of shareholder RM Funds, told City A.M.
“What is important now is the new investment manager quickly removes defaulting counterparties, whilst reletting with credible partners, in addition we would welcome an overhaul in corporate governance.
“Shareholders have many unanswered questions but are currently left with a suspended stock, no up to date valuation or audit of annual accounts and no clear line of sight to a recommencement to trading.”
Redemption and Lotus Sanctuary cumulatively made up some 21 per cent of Home REIT’s rent roll, while the third charity, Eden Safe, made up a further 2.2 per cent, according to the company’s own records.
When approached for comment yesterday, Judge did not respond to questions over whether Eden Safe was at risk of failing as well. He denied that the three separate vehicles had been set up to skirt rental limits set by Home REIT, however.
“The different CICs were set up to differ the vulnerable groups we housed,” he told City A.M. over Whatsapp. “Lotus housed single females, were as [sic] Redemption housed vulnerable males. This made sorting referrals and recruiting staff easier. No, it had nothing to do with Home REIT.”
City A.M. revealed in March that Judge had paid himself and his directors £1.2m in the months prior to the collapse of Lotus, despite its losses swelling to £4.75m in the same period.
The exposure of Home REIT to single directors and organisations has been at the core of the firm’s troubles since a damning short seller attack from Viceroy Research in November, which triggered the series of scandals facing the firm.
Jenny Morrissey, a partner at law firm Harcus Parker, which is suing Home REIT on behalf of shareholders, told City A.M. yesterday the close connections between Home REIT tenants reflected a “lack of due diligence on the financial and operational robustness of the tenant counterparties”.
“Home REIT has said that the close connections do not matter because they are legally distinct entities, but we see now with the domino effect of closely connected tenants going into administration that this distinction has not mitigated – in a practical sense – the risk of Home REIT being overly exposed to a small number of tenants,” she said.
Home REIT announced at the end of July that it would ditch its sole social housing focus and include “any form of residential use as its primary focus” as it looks to steady the ship and restore its income.
The firm also offloaded 40 properties at a loss of around 60 per cent in a bid to raise funds.
Home REIT declined to comment.