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Britain’s accountancy watchdog is investigating BDO over its audit of Home Reit, a property fund providing accommodation to the homeless, which is winding down after a short seller accused it of misleading investors.
The Financial Reporting Council said on Tuesday it was probing BDO’s audit of the social housing company’s accounts for the year to August 2021, the last year before Viceroy Research raised concerns about its property valuations and rental income in late 2022.
BDO said: “We are fully co-operating with the FRC on this matter but are unable to comment further while its investigation is live.” Home Reit declined to comment.
Home Reit listed on the London stock exchange in 2020, riding a wave of interest in environmental, social and governance issues by promising to “help alleviate the homeless crisis in the UK” and produce “secure inflation-protected income” for its shareholders.
The company went on to raise just over £610mn on top of the £240mn of shares it sold in its initial public offering. But it soon became embroiled in a crisis after several allegations by Viceroy Research in 2022.
The company rejected the allegations in a detailed rebuttal but later instructed Alvarez & Marsal to investigate matters including those raised by Viceroy, leading to the revelation of issues the board said it had been unaware of.
Last year, Home Reit revealed it had been unable to secure refinancing of its existing debts on terms that it could recommend to shareholders and decided a “managed wind-down strategy” was in investors’ best interests.
The company said in January, when publishing long-delayed 2023 annual results, that it had revalued its property portfolio at only 40.7 per cent of its £1bn purchase price. It said the Financial Conduct Authority was investigating the company.
Home Reit, which has no employees and only has non-executive directors, overhauled its board and replaced its investment advisers AHRA and its alternative investment fund manager Alvarium FM with AEW Investment Management in 2023.
The group said this year it had delayed its 2023 results due to the “time and effort” in resolving issues that had emerged in its previous year’s earnings, adding BDO had undertaken an “enhanced” audit in respect of its 2022 financial year.
The company also said in its 2023 results that challenges were raised by BDO on its accounting treatment of several items. It said the board had decided that “revised accounting policies were required to appropriately account for the substance of historical acquisitions and lease contracts”.
Chair Michael O’Donnell said the company had faced “unprecedented challenges” during the year including “investigations into allegations of wrongdoing, substantial tenant arrears, tenant liquidations . . . suspension of its shares” and a “potential group action against the company”.
More than 88 per cent of its properties, which were leased to 29 charities, were valued on a “vacant possession basis” and 8 per cent were “deemed uninhabitable”. In August 2023, three of the charities were in administration and 28 were considered “to be of weak covenant strength”.
BDO signed off on the company’s 2022 and 2023 annual reports but raised a number of “limitations of scope” about areas where they could not obtain sufficient information.
Home Reit said in a trading update in February that it had received a pre-action letter of claim from law firm Harcus Parker on behalf of a group of current and former shareholders in the company. Its shares were suspended in early 2023 after falling almost 70 per cent the previous year.
