TIDMHOME
RNS Number : 1960L
Home REIT PLC
04 September 2023
4 September 2023
Home REIT plc
("HOME" or the "Company")
Monthly Update
The Board and AEW UK Investment Management LLP ("AEW" or the
"Investment Manager") have undertaken to provide monthly updates
following the approval of the amended investment policy and the
formal appointment of AEW as the Company's Investment Manager and
AIFM, which was effective on 21 August 2023. AEW is focused on
stabilising the property portfolio and financial condition of the
Company and seeking to maximise income and capital returns.
Summary
The Company and AEW highlight the following updates, with
further detail on each of these items also provided below.
Portfolio assessment and tenant engagement
-- AEW has now engaged with 100% of the tenants with a focus on
understanding their status, the underlying occupancy of leased
properties and their ability to meet rental demands with a view to
improving rent collection and, where appropriate, re-tenanting
assets
-- AEW is continuing to conduct due diligence on all tenants and
expects to rationalise tenants during the stabilisation period
-- AEW is engaging with the liquidators of Redemption Project
CIC ("Redemption") and Serenity Support CIC ("Serenity"), which
were non-performing tenants, to unlock opportunities to re-tenant
and carry out other asset management initiatives
-- When completing re-tenanting exercises, there will be a focus
on minimising any potential disruption to the underlying occupants
and any support services
-- The Company has appointed Vibrant Energy Matters Limited
("Vibrant"), a subsidiary of Connells Limited, to inspect all 2,473
properties in the portfolio, with target completion by mid-November
2023
-- The Company has appointed Jones Lang LaSalle Limited ("JLL")
as valuer to undertake valuations of the entire portfolio on the
bases of market value and market value on the special assumption of
vacant possession as at 31 August 2022, 28 February 2023 and 31
August 2023 with target completion by mid-November following
completion of all property inspections.
Financial position and related matters
-- The Board and AEW continue to engage proactively and
constructively with HOME's lender through regular meetings and
continue to service interest payments in full as they fall due
-- As at 31 August 2023, the Company had cash balances of
GBP13.5m including amounts held on account with the Company's
lender and subject to certain restrictions regarding its
availability. The Company has GBP0.8m of unrestricted cash, this
low unrestricted cash balance was expected as it is after the
quarterly interest payment was made and before proceeds from the
sale of properties are received, which are due early September.
-- On 4 August 2023, the Company exchanged contracts on the sale
at auction of 40 properties for GBP4.8m with completion due early
September
-- Further sales are expected in the near term as part of the
strategy to stabilise the financial position of the Company
-- 100 leases of properties in the One (Housing & Support)
CIC ("One CIC") portfolio were surrendered, with the Company
assuming direct leases with the existing sub-tenant, Mears Limited,
to generate GBP0.9m per annum of rent receipts
Publication of annual and interim reports
-- A key workstream required to publish the outstanding accounts
and restore the Company's shares to trading is completion of the
property valuations and inspections, a process which is
underway
-- Revised accounting policies for lease income recognition and
acquisition accounting are being finalised which may also result in
restatement of the 2021 accounts
-- The Company does not expect to be in a position to publish
its outstanding accounts until late 2023 at the earliest
Shareholder engagement
-- Following its appointment as property adviser, AEW has
engaged with a significant proportion of the Company's shareholder
register
-- The Company and AEW intend to provide quarterly presentations
open to all shareholders from mid-October 2023
-- The Company intends to release monthly updates on the first Monday of each month
Corporate matters including the Board of Directors
-- The Board has initiated a formal and phased succession process
-- An individual with significant listed company expertise is
being considered for the role of Senior Independent Director and
will lead the succession process
FOR FURTHER INFORMATION, PLEASE CONTACT:
FTI Consulting (Communications HomeREIT@fticonsulting.com
Adviser) +44 (0)20 3727 1000
Dido Laurimore
Eve Kirmatzis
Ellie Perham-Marchant
Oliver Harrison
The Company's LEI is: 213800A53AOVH3FCGG44.
For more information, please visit the Company's website:
www.homereituk.com
Monthly update - further information
Portfolio assessment and tenant engagement
Assessment of portfolio
Set out below are certain unaudited key portfolio metrics at 31
August 2023.
31 August 2023
Number of properties 2,473
Number of beds 11,861
Number of tenants 29
Number of leases 2,473
Annual rent roll (1 2) GBP53.9m
In period: 1(st) June 2023 to
31 August 2023
Properties exchanged for sale 40
Rent collection (2) GBP0.9m
% rent collection (2) 7%
Number of leases surrendered
to the Company 140
(1) Contracted rent as at period end
(2) Excluding 115 properties under separate management
agreements
Geographic Region Number Number of
of Properties Properties
(%)
-------------------------- ----------------- ------------
North East 813 32.9%
North West 424 17.2%
Yorkshire and the Humber 337 13.6%
East Midlands 277 11.2%
West Midlands 212 8.6%
South West 146 5.9%
London 87 3.5%
East of England 86 3.5%
South East 68 2.7%
Wales 23 0.9%
-------------------------- ----------------- ------------
Total 2,473 100.0%
Top 10 Tenants Number Number % of portfolio
of Properties of Beds annual contracted
rent
------------------------------------ ----------------- ---------------- -------------------
One (Housing & Support) CIC 234 1,200 11.9%
The Big Help Project 382 1,441 11.2%
Redemption Project CIC* 152 960 11.1%
Supportive Home's CIC 209 1,046 11.1%
GEN LIV UK C.I.C.* 107 571 6.5%
Bloom Social Housing CIC 94 645 5.6%
CG Community Council 54 386 5.2%
Dovecot & Princess Drive Community
Association 52 396 4.6%
Noble Tree Foundation Limited 143 527 4.6%
LTG Vision CIC 200 646 4.2%
TOTAL 1,627 7,818 76.0%
* In liquidation
JLL was appointed in July 2023 to carry out a valuation of the
portfolio as at 31 August 2022, 28 February 2023 and 31 August 2023
on the bases of market value and market value on the special
assumption of vacant possession. In addition, Vibrant was appointed
in August 2023 to inspect all properties and report on condition
(including standards of quality, safety and compliance), occupancy
levels, and Countrywide Surveyors Limited, another subsidiary of
Connells Limited, has been appointed to provide building surveys on
the required repairs and refurbishment to bring the properties to a
good condition. Once a property has been inspected, a decision will
be made regarding the type of residential use that can be
offered.
Inspections require access to be organised through tenants, any
relevant property managers, individual occupiers and for vulnerable
occupiers the attendance of support providers may be required. The
inspection program of 2,473 properties comprising 11,861 beds
requires significant co-ordination and communication between
relevant parties. The inspection program is targeting mid-November
for completion. AEW will provide updates on the valuation process,
inspection program and additional key metrics as part of future
monthly updates.
Tenant engagement
AEW has engaged with 100% of the tenants as part of its ongoing
process to assess each tenant. It is expected that those tenants
who are paying rent, providing a good quality service and are able
to satisfy due diligence requirements will remain within the
portfolio. AEW is aware that some of the current tenants will not
be able to satisfy these standards and therefore will be deemed
unsuitable and will require replacement over time. AEW will be
seeking quality providers with Local Authority support, as well as
relationships directly with Local Authorities and/or governmental
departments. The removal of lease length and index-linked
restrictions and the flexibility to include any form of residential
use during the stabilisation period in the amended Investment
Policy allows AEW to consider tenants from the private rental
sector, and other social housing occupier groups. Stringent
covenant analysis and due diligence will be undertaken on all
proposed tenants in accordance with AEW's rigorous processes.
Following Redemption and Serenity entering into voluntary
liquidation, AEW expects more tenants will enter liquidation. When
a tenant enters into liquidation, the first priority is to work
with the appointed liquidator, where possible, to establish the
status of the underlying occupiers and put in place a suitable
stabilisation partner (e.g. residential property manager or
intensive housing manager) to ensure, where applicable, any support
services remain in place for the occupiers. Whilst Redemption and
Serenity were non-performing tenants, liquidation provides
opportunity for AEW to unlock the ability for the Company to
re-tenant the properties or carry out other asset management
initiatives. Discussions with prospective tenants and quality
providers remains on-going in respect of properties suitable for
occupation.
Financial position and related matters
Portfolio rationalisation
On 4 August 2023, the Company announced it had exchanged on the
sale of 40 properties at auction, representing 1.6% of the
portfolio by number, for GBP4.8m. The properties selected for sale
had been identified as liquid assets with limited prospects for
income and capital return, in part given the level of capital
expenditure required to bring them up to specification. The average
sale price at 39.4% of purchase price reflected the vacant status
of the majority of the properties (73%) and condition of the
properties. The property sales are expected to complete in early
September. AEW is undertaking a comprehensive assessment of the
remaining portfolio which is expected to vary in terms of overall
condition and suitability for occupancy and will provide further
detail in future monthly updates.
The previously announced surrender of 100 leases in the One CIC
portfolio allows the Company to benefit from immediate rental
income of GBP0.9m per annum. The surrender agreement allows the
Company to receive a sustainable income stream from a strong tenant
covenant and is expected to generate significantly higher rent
collection than has previously been received from One CIC in
relation to the properties, despite a lower headline rent
(previously GBP1.2m per annum). The transaction is part of AEW's
strategy to stabilise the property portfolio and stabilise the
financial position of the Company.
Cash position
As at 31 August 2023, the Company had cash balances of GBP13.5m
including amounts held on account with the Company's lender and
subject to certain restrictions regarding its availability. The
Company has GBP0.8m of unrestricted cash, this low unrestricted
cash balance was expected as it is after the quarterly interest
payment was made and before proceeds from the sale of properties
are received, which are due early September. The Company is
carefully managing its liquidity with the proceeds from disposals
expected to be received early September to provide working capital
and repay borrowings. The Company has incurred one-off exceptional
expenses which relate to valuation, inspection and professional
advisers of GBP8.2m for the calendar year to date, which is
expected to significantly decrease in the subsequent period. The
exceptional costs of GBP8.2m include GBP3.0m for valuation and
inspections, GBP2.0m for legal advisers and A&M report, GBP1.8m
for strategic advisers and GBP1.0m for advisers and additional
audit fees in relation to the 2022 annual accounts. The Board
continues to review all third-party appointments and manage
costs.
Borrowings
The Company has total borrowings of GBP220m, comprising a
GBP120m interest-only term loan, repayable in 2032, with a fixed
all-in rate of 2.07 per cent. per annum, and a GBP100m
interest-only term loan, repayable on 2036, with a fixed all-in
rate of 2.53 per cent. per annum. The Board and its advisers
continue to work proactively and constructively with HOME's lender
and the Company has continued to service interest payments in full
as they fall due.
Rent collection
For the quarter period ending 31 August 2023, the Company has
demanded GBP13.2m of rent, excluding amounts due in respect of 115
properties under separate management agreements, of which 7% has
currently been collected. AEW is continuing to assess tenants'
ability to meet rental demands with a view to improving rent
collection.
Publication of the annual and interim reports
The appointment of JLL as the Company's valuer and Vibrant and
Countrywide to provide condition reports and quantification of
capital expenditure required to bring properties up to
specification are key steps towards obtaining independent
valuations as at August 2022, February 2023 and August 2023.
The Board and AEW have determined that revised accounting
policies for revenue recognition (lease) and acquisition accounting
are required in order to better reflect the substance of historical
acquisitions and lease arrangements. These revised policies are
being presented to the Company's auditor BDO LLP ("BDO") and are
being finalised, which may also result in restatement of 2021
accounts.
With inspections not scheduled to complete until mid-November
and the revised accounting policies being applied back to
inception, the Board currently anticipates publication of the
outstanding accounts by the end of 2023 at the earliest. The
Company has communicated this timeline to the FCA and is also in
contact with Companies House about the Company's filing
obligations. As previously announced, BDO as auditor of HOME is
conducting an enhanced audit; the Board and AEW will continue to
work with BDO to publish the results and progress to restore
trading in the Company's ordinary shares as soon as is practically
possible.
Shareholder engagement
Following its appointment as property adviser, AEW has engaged
with a significant proportion of the Company's shareholder
register.
The Company intends to release monthly updates on the first
Monday of each month. Future reports will focus on key activity and
developments in the month.
AEW, in order to engage further with retail investors and other
stakeholders, intends to provide quarterly presentations open to
all shareholders from mid-October 2023. Further details will be
provided in the next monthly report.
Corporate matters including the Board of Directors
Board succession planning
The Board has worked tirelessly to address the issues facing the
Company and continues to do so. Following the appointment of AEW
and the commencement of the stabilisation period, as well as
consultation with major shareholders, the Board has initiated a
formal and phased succession process. An individual with
significant listed company expertise is being considered for the
role of Senior Independent Director. This individual would be
expected to join the Board in the coming weeks and to lead the
succession process. It is expected that the majority of the current
Board will have departed at or around the point of restoration of
trading in the Company's shares, and that the Board will transition
entirely within 12 months, allowing a period of handover. In
assembling the new Board, careful consideration will be given to
the appropriate skills, experience, knowledge, culture, capacity
and independence of the incoming Board members. Further
announcements will be made in due course.
Other matters
The Board is aware that certain shareholders wish to receive
further details of the Alvarez & Marsal Disputes and
Investigations, LLP report (the "A&M Report"). The Company has
reserved all of its rights in respect of the matters referred to in
the A&M Report and cannot comment further at this stage in
respect of any potential claims, as to do so may prejudice the
Company's position in any potential proceedings. Any relevant
announcements in this regard would be made to the market at the
appropriate time.
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END
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