REG - Home REIT PLC - Monthly Update

Home ReitAnnouncement

04/09/2023 07:00

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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 £13.5m
including amounts held on account with the Company's lender and subject to
certain restrictions regarding its availability. The Company has £0.8m 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 £4.8m 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 £0.9m 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 Adviser)  HomeREIT@fticonsulting.com

 Dido Laurimore                           +44 (0)20 3727 1000

 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
(http://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)                       £53.9m
 In period:                                   1(st) June 2023 to 31 August 2023
 Properties exchanged for sale                40
 Rent collection (2)                          £0.9m
 % 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  of Properties            Number of 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 of Properties             Number of Beds                % of portfolio 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
£4.8m. 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 £0.9m 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 £1.2m 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 £13.5m including
amounts held on account with the Company's lender and subject to certain
restrictions regarding its availability. The Company has £0.8m 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 £8.2m for the calendar
year to date, which is expected to significantly decrease in the subsequent
period.   The exceptional costs of £8.2m include £3.0m for valuation and
inspections, £2.0m for legal advisers and A&M report, £1.8m for
strategic advisers and £1.0m 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 £220m, comprising a £120m interest-only
term loan, repayable in 2032, with a fixed all-in rate of 2.07 per cent. per
annum, and a £100m 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 £13.2m
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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