HOME Home Reit Plc

5 February 2024

Home REIT plc

("HOME" or the "Company")

Monthly Update

The Board and AEW UK Investment Management LLP ("AEW" or the "Investment Manager") provide their monthly update in respect of January 2024. 

Summary

The Company and AEW highlight the following updates, with further detail on these items also provided below.

·    Rent collection including arrears representing 10% of rent invoiced during the month. 

·    The Company had £18.9m cash balances as at 31 January 2024 of which £6.9m is unrestricted.

·    As announced on 24 January 2024, 103 properties exchanged on sale at auction for £6.6m with completion expected during February and March. Further receipts are expected in respect of the properties which exchanged for sale in November and December 2023 that have not yet completed.

·    Repayment of £9.9m of debt to the Company's lender in January comprising a cash repayment of £8.5m and net break gains of £1.4m applied to loan principal. Total borrowings reduced to £162.8m (from £172.7m as at 31 December 2023). In addition, the Company has commenced a re-financing process to consider alternative finance options, as part of an exercise to consider the long-term financial stability of the Company

·    An additional 313 internal property inspections have been completed in January taking the total to 1,828 as at 31 January 2024. The inspection programme is due to continue during February and into March.

FOR FURTHER INFORMATION, PLEASE CONTACT:

The Company's LEI is: 213800A53AOVH3FCGG44.

For more information, please visit the Company's website: www.homereituk.com

Portfolio assessment and tenant engagement

·    AEW continues to undertake its comprehensive review and data collection exercise of the property portfolio. Analysis of the underlying condition of the properties is paramount to determine suitability, capital expenditure requirements and income and capital returns prospects for each asset as AEW works to rationalise the portfolio as part of the stabilisation strategy.

·    Of the 1,973 properties externally inspected by Jones Lang LaSalle Limited ("JLL") and owned at 31 January 2024, the condition of the properties has currently been assessed as 0% very good, 15% good, 68% fair, 15% poor and 2% very poor.

·    Of the 1,380 property inspections undertaken by Vibrant, occupancy (at least one bed occupied) is 78% as at the date of the property inspections with 22% being vacant (whole building).

·    The inspection programme continues to require significant co-ordination with multiple parties and is due to continue throughout February and into March.  To date, 1,135 scheduled inspections have been cancelled or aborted in total since the inspection programme commenced.  Vibrant and AEW continue to prioritise completion of the inspection programme.  

·    As previously announced on 24 January 2024, the Company exchanged on the sale of 103 properties at auction with completion expected during February and March. Sale proceeds will be used to provide working capital and reduce borrowings.

·    AEW continues to focus on obtaining control of the portfolio with legal action being taken against non-performing tenants. The Company also continues to work constructively with a number of tenants to facilitate restructuring of leases and rationalisation of the portfolio. 

Rent Collection, Financial position and related matters

·    Rent collected including arrears represents 10% of the rent invoiced in the month of January.  It is anticipated that rent collection will vary month on month in the near term as AEW continue to work on stabilising the portfolio and pursues legal action.

·    Following announcements of exchanges at auction in previous months, 102 properties completed during January for a total of £15.0m and 59 properties remain exchanged for sale for a total of £10.5m with completion expected in February. The 103 properties exchanged for sale in January are expected to complete during February and March for a total of £6.6m.

·    The Board and AEW continue to engage proactively and constructively with the Company's lender through regular meetings and continue to service interest payments in full as they fall due.

·    The Company repaid £9.9m of debt to the Company's lender in January comprising a cash repayment of £8.5m and a net break gain of £1.4m also being applied in repayment of the debt. A total of £57.2m of debt has been repaid since the Company entered the stabilisation period during August 2023. 

·    As at 31 January 2024, the Company has total borrowings of £162.8m, comprising a £72.5m interest-only term loan, repayable in 2032, with a fixed rate of 2.07% per annum, and a £90.3m interest-only term loan, repayable on 2036, with a fixed rate of 2.53%per annum.  An additional fee of 5.00% per annum is charged on the aggregate outstanding loan balances, with the fee accruing on a daily basis from 30 November 2023.  The additional fee is payable at the earlier of 28 June 2024 or full repayment of the loans.

·    In addition, the Company has commenced a re-financing process to consider alternative finance options, as part of an exercise to consider the long-term financial stability of the Company. Further announcements will be made in due course.

·    The Company had £18.9m cash balances as at 31 December 2023 of which £6.9m is unrestricted.

·    Further sales are expected in the near term as part of the strategy to stabilise the financial position of the Company.

Valuation, Publication of the annual and interim reports

·    As announced on 20 December 2023, JLL, as external valuer, has issued draft valuation reports, as at 31 August 2022, 28 February 2023 and 31 August 2023 on the bases of fair value and market value on the special assumption of vacant possession.  These valuations may be subject to further amendment due to the ongoing inspection programme and subject to completion of the formal valuation and audit process.

·    As previously announced, the publication of the Company's results for the financial years ended 31 August 2022 had initially been delayed to allow the Company's auditor, BDO LLP, to undertake an enhanced set of audit procedures in respect of the financial year ended 31 August 2022, and for the Board to instruct Alvarez & Marsal Disputes and Investigations, LLP to conduct an investigation into allegations of wrongdoing. Without waiver of privilege, the key findings of this report, including the arrangements for refurbishment of properties, settlement of rent arrears and arrangements with tenants which had not been brought to the Board's attention by the appointed investment advisor at the time, caused the Board to determine that revised accounting policies for acquisition accounting and revenue recognition were required to appropriately account for the substance of historical acquisitions and lease contracts.

·    The audit process remains on-going with AEW dedicating very substantial resource to complete this key workstream. The completion of the audit is primarily subject to the continuing internal inspection programme, the associated finalisation of the valuation and the application of revised accounting policies back to inception. As outlined above, access constraints remain a significant challenge for the completion of the internal inspections.  AEW's work in relation to the adjustments for the revised accounting policies is now substantially complete.  The Board and AEW are committed to continuing to work at pace with BDO to publish the audited results for both 31 August 2022 and 31 August 2023, during the second quarter of 2024. 

·    The Board and AEW remain committed to the restoration of trading in the Company's ordinary shares and fulfilling Home REIT's mission of providing accommodation to vulnerable people as soon as is practically possible.

Shareholder engagement

·    AEW continues engagement with the Company's shareholders, including via a retail shareholder webinar on 26 January 2024. The presentation for this is available on the Company's website.

·    As announced on the 1 February, the Annual General Meeting of the Company (AGM) is to be held on 29 February 2024.

·    The next monthly update is expected to be announced on Tuesday 5 March 2024.

Board succession

·    As announced on 18 January 2024, Michael O'Donnell has been appointed to succeed Lynne Fennah as the independent Non-Executive Chair of the Company.

·    Having stepped down as Non-Executive Chair, Lynne Fennah will continue in her capacity as a Non-Executive Director of the Company to provide continuity and will use her invaluable experience and knowledge of the Company to support the Board and the Company's advisers. As announced in the Notice of AGM, released on 1 February 2024, Lynne Fennah will offer herself for re-election at the Accounts Meeting which will be held as soon as possible after publication of the accounts referred to above.

·    As announced on 18 January 2024, Simon Moore, Marlene Wood and Peter Cardwell will step down on publication of the 2022 and 2023 Annual Reports and Accounts.

·    Progress continues to be made in identifying new independent Non-Executive Directors including a new Chair of the Audit Committee and the process will be overseen by Michael O'Donnell. The Company remains well placed to conclude this process in advance of the restoration of the listing of its shares.

Portfolio Metrics

Set out below are certain unaudited key portfolio metrics at 31 January 2024.

¹ Excluding 157 properties under separate management agreements

² Excluding 73 properties under property management agreements with HOME having direct AST leases with occupiers

³ Contracted rent as at period end

⁴ 3 properties subsequently sold

⁵  Rent collection - rent collected including arrears /rent invoiced

Tenants in liquidation (Supportive Homes CIC, GEN LIV UK C.I.C. and Serenity Support CIC, Marigold Housing account for 9.9% of the annual contracted rent as at 31 January 2024).