BDO in the spotlight over Home REIT audit
BDO is facing questions over its audit of troubled property investor Home REIT, after it was asked to look again at the social housing firm’s books amid accusations executives had been ‘round-tripping’ revenues and inflated the value of its property portfolio.
Home REIT, which invests in housing for vulnerable groups, was forced to delay the publication of its annual accounts in December in order for BDO to deep-dive into its books with “enhanced audit procedures”, following a slew of attacks from short seller Viceroy Research.
However, BDO has now come under fire from activist investor The Boatman Capital which has laid out a series of demands to the firm and raised concerns over the independence of its audit process.
In a letter seen by Morning Wire, analysts at The Boatman questioned the fact that Home REIT’s finance chief James Snape was previously a member of the BDO real estate audit team and asked for clarity on how the audit would be conducted “independently, without favour or undue influence”.
“We think it is reasonable for investors to ask for assurances that there will be appropriate professional distance and rigour between BDO as auditor and one of its ex-employees,” the firm said.
The Boatman, which last month published an open letter calling for Home REIT’s board to be sacked, has also flagged concerns over the source of Home REIT’s revenues and the value of its property portfolio, after it emerged that commercial property firm Knight Frank had never entered many of the properties it valued.
Recordings of investor calls heard by Morning Wire revealed that Home REIT chiefs instructed Knight Frank not to enter its properties before valuing them. Home REIT insists it is standard practice in the industry and was done to protect vulnerable residents.
Revenue round tripping?
Questions have been swirling over the source of Home REIT’s revenues since December after it admitted that developers dished out payments to tenants to support rental payments while they waited for occupancy to rise.
The Boatman echoed Viceroy’s attacks today and said the payments appeared to be a form of indirect “round tripping”.
“We would encourage BDO to establish the scale of these incentive payments to tenants,” The Boatman said.
The letter marks the latest exchange in a barrage of attacks against Home REIT since late November, when Viceroy alleged the firm’s tenants were unable to pay rent and had little financial track record.
Shares in the firm plummeted around 50 per cent at the beginning of January before trading in Home REIT was suspended last week due to the delays in filing its accounts.
Home REIT has insisted the allegations against it are “baseless and misleading”. Home REIT and James Snape did not respond to Morning Wire’s request for comment.
BDO declined to comment.