Home REIT Plc: A Compelling Case for ESG Due Diligence

The seemingly mysterious life of an active Fund Manager combines multiple professional functions; reviewing and overseeing portfolios, monitoring markets, trading, responding to fast-moving market and geo-political news, and looking for new opportunities. Maintaining portfolio depth and breadth by hunting for new opportunities, both listed and new to market, is a rewarding part of active fund management. Fund managers bring to bear great expertise in appraising often dense prospectuses for potential new listings or IPOs (Initial Public Offering). What does the business do, how does it make money, what is the business model to profitability, what is the governance like? All these questions. as well as looking at the investment fundamentals will occupy the Fund Manager before making a decision on whether to place an order for shares as part of the IPO.

It is also at this point that investment houses with a strong responsible and sustainable investment overlay will bring a different, but complementary discipline to bear that acts as a second, uncorrelated sense check on the business opportunity. In the current fund management environment where responsible investment as a strategy is very much in the doldrums, Home REIT Plc stands as as a sobering reminder of how applying a rigorous ESG (Environment, Social and Governance) overlay can save managers from making critical errors of judgement.

Home REIT came to market in 2020 and was heavily promoted as an ESG attractive investment for those Managers seeking opportunity from a socially positive standpoint. The investment objective as set out in the prospectus was to ‘invest in a diversified portfolio of homeless accommodation assets in accordance with its investment policy and with a view to achieving its investment objective¹’. The company would ‘deliver inflation protected income and capital growth over the medium term²’. The asset-backed security was targeted solely at the provision of housing for the homeless. The capital raise would see the company invest in hundreds of properties – indeed over three capital raises Home REIT controlled over a thousand properties raising north of £800m, and offering a portfolio of some 12,000 beds³. At the time, this was positioned as a genuinely innovative scheme that would deliver attractive returns and very significant social positives, something that was exceedingly rare in the UK market. Unsurprisingly, many investment firms with an ESG pivot took up the offer and invested.

Rereading the prospectus now, and reflecting on Home REIT’s tumultuous collapse, it is still surprising that investors were so taken in. The Key Risks section of the prospectus clearly states that income would depend wholly on tenant’s paying their rent ‘ultimately funded via central government income flows⁴’. I still recall the double take in reading that; an investment promoted strongly as ESG compliant, would rely wholly on taxpayer funded Housing Benefit and thereby a direct transfer of wealth from the public to the private sector. We felt intrinsically this was a broken, if not duplicitous model for easing the problems of homelessness. Admittedly, the model relied on Home REIT achieving long-lease holding agreements with local authorities, housing associations and charities who ‘managed’ the tenants, however, it did not, as such, provide any innovative social utility. Our refusal at the time to allow investment was controversial; Home REIT company management had been keen to get us on board as a leading and well-respected ESG House*, and the Fund Manager was perhaps surprised as other investors piled in. This remains one of the most sobering experiences of how a robust ESG discipline saved the Fund from investing in a very poor, and quick-to-fail IPO.

The rest as they say, is history. Home REIT is now in long-term wind down, there have been six arrests carried out by the Serious Fraud Office looking into alleged fraud and market deception, an ongoing investigation by the City regulator, whilst Home REIT’s auditor, BDO, is also under investigation by the FRC (Financial Reporting Council) over its handling of the 2021 accounts, showing how quickly Home REIT went from social darling to pariah. Trading in Home REIT shares was suspended in 2023. The company’s unravelling quickened following an attack by Viceroy Research which aired concerns about the tenant base, the price paid for some properties and consequent valuations. Independent valuers suggested the portfolio was worth some 60% less than was paid (£412.9m versus £977m⁵). It also came to light that far from being a targeted response to homelessness, Home REIT was in fact servicing significant numbers of private tenants.

For us*, at the time, the business model of transferring housing benefit (a £15bn annual charge on the public purse⁶) direct to private investors was nakedly unethical, and seriously compromised our values and principles. The House* did not invest and ultimately saved its retail investors from a very significant capital loss.

A two-part process whereby the Fund Manager considers economic and business fundamentals and responsible investment analysts apply a different but parallel risk lens remains a durable, searching and rigorous process for identifying potential hazards. Home REIT remains perhaps the most egregious example of an instrument brought to market for its social positives which then soured and turned poisonous with dramatic pace. For those who feel ESG or responsible investment overlay has served its time, the sorry tale of Home REIT remains a lesson and a warning.

Notes

¹ Home REIT Plc Prospectus retrieved from https://quoteddata.com/wp-content/uploads/2020/09/200922-prospectus.pdf 

² Ibid

³ https://www.civilsociety.co.uk/news/arrests-made-at-firm-that-leased-properties-to-charities-under-investigation.html 

⁴ Home REIT Prospectus ibid

⁵ Six Arrested in Serious Fraud Office Investigation of Home REIT, The Times January 15^th 2026

⁶ Written Questions: Housing Benefit asked 4^th March 2024 and answered 12^th March Written questions and answers - Written questions, answers and statements - UK Parliament

*EdenTree Investment Management – both Ketan Patel, CFA and Neville White were employees at the time, the former as a Fund Manager and the latter as Head of Responsible & Sustainable Investment.