REG - Home REIT PLC - Monthly Update

Home ReitAnnouncement

02/10/2023 07:00

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RNS Number : 2594O  Home REIT PLC  02 October 2023

2 October 2023

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 September as AEW remains
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.

·    Surrender of 146 leases with Redemption Project CIC allowing the
transfer and reassignment of leases to new tenants

·    Since appointment as Investment Manager on 21 August 2023, AEW has
now completed lease surrenders and re-tenanting, where appropriate on 10% of
the portfolio as part of its strategy to stabilise the property portfolio

·    As previously announced, the Company exchanged contracts on the sale
of 137 properties at auction generating gross proceeds of £22.8m, with
completion expected in late October

·    Repayment of £3.8m of debt to Company's lender

·    Rent collection reduced to 3% during the month following further
deterioration of some tenants' financial strength and continued
non-performance of some tenants

·    £14.0m cash balances of which £1.4m is unrestricted, excluding
proceeds of sales referred to above

·    362 internal property inspections completed by Vibrant to 27
September 2023, assessing the condition, compliance and occupancy of
properties

·    The Company's Valuer has externally inspected 1,704 properties and 90
internal inspections as at 29 September 2023

·    AEW continues to assess strategies for non-performing tenants and
continued non-payment of rent by some tenants

Portfolio assessment and tenant engagement

·    The Company announced on 22 September 2023 the surrender of leases on
146 properties by Redemption Project CIC ("Redemption").  Mears Limited,
guaranteed by Mears Group PLC, the housing and social care provider, became a
direct tenant on the 77 properties they have been occupying for their
remaining lease term of 8 years with an initial contracted rent income of
£732,720 per annum. The surrender agreement allows the Company to receive a
sustainable income stream from a strong tenant covenant and is expected to
generate higher rent collection than has previously been received from
Redemption.

·    Following the transaction, the Company's direct exposure to Mears
Limited increased to 177 properties and £1,623,875 million per annum of
contracted rent as at 29 September 2023.

·    For the remaining 69 Redemption leases that have been surrendered,
the Company has agreed flexible leases on these properties with the Community
Accommodation Group ("CAG"), a Charitable Incorporated Organisation and a
provider of social housing and care, for a term of 5 years and appointed
Myshon Limited, a specialist intensive housing manager with a specific focus
on specialist supported housing, supported housing and affordable housing, to
manage the properties, also on a flexible agreement.

·    The Company has no further exposure to Redemption, a non-performing
tenant which had not paid any rent for 2023. The transaction was in line with
AEW's strategy to stabilise the Company's portfolio with the aim of improving
future rent collection

·    Since appointment as Investment Manager on 21 August 2023, AEW has
now completed lease surrenders and re-tenanting where appropriate on 10% of
portfolio as part of its strategy to stabilise the property portfolio

·    The Company previously announced on 7 September 2023, that Supportive
Homes CIC had entered into liquidation.  AEW continues to engage with the
liquidators of Supportive Homes CIC, GEN LIV UK C.I.C. and Serenity Support
CIC. Tenants in liquidation account for 21.0% of the annual contracted rent as
at 29 September 2023.  AEW expects more tenants to enter into liquidation in
the short term.  Liquidations provide opportunities for AEW to re-tenant and
carry out other asset management initiatives.

·    Discussion with prospective tenants and quality providers of social
housing and support services continue in respect of properties suitable for
occupation.  Stringent covenant analysis and due diligence will be undertaken
on all proposed tenants in accordance with AEW's rigorous processes.

·    Assessment of all tenants remains ongoing and AEW continues to
develop its strategy for non-performing tenants during the stabilisation
period particularly as the ongoing inspection program provides evidence of
underlying occupancy and suitability of property for use.

·    As at 27 September 2023, 362 properties had been inspected by Vibrant
Energy Matters Limited ("Vibrant"), a subsidiary of Connells Limited.
Vibrant has been appointed to inspect all properties in the portfolio which
are not under contract for sale, with 16% completed to 27 September 2023 and
target completion by mid-November 2023, in parallel to the valuations being
undertaken by Jones Lang LaSalle Limited ("JLL").

·    Inspections include assessment of compliance with Health & Safety
and other regulations. Where inspections identify non-compliance, AEW is in
the process of informing the relevant tenants of their responsibility for
compliance and will monitor tenant's rectification of these incidences.

·    JLL has externally inspected 1,704 properties and internally
inspected 90 properties as at 29 September 2023 with target completion by
mid-November of all property externally and 10% internally.

 

Rent Collection, Financial position and related matters

·    Rent collection reduced to 3% for the month of September from 7% for
the 3 month period ending 31 August 2023 resulting from the continuing
deterioration of some paying tenants' financial strength and their ability to
meet rental payments.

·    AEW expects that the asset management initiatives it is putting in
place to generate higher rent collection in future periods.

·    AEW continues to assess strategies for non-performing tenants and
continued non-payment of rent by some tenants and will consider all actions
available to the Company to improve rent collection in future periods.

·    As announced on the 4 August 2023, the Company exchanged contracts on
the sale at auction of 40 properties for £4.8m and these completed in early
September, of which £3.1m was utilised for repayment of debt to the Company's
lender.

·    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 29 September 2023, the Company has total borrowings of
£216.2m, comprising a £116.2m 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.

·    As at 29 September 2023, the Company had cash balances of £14.0m
including amounts held on account with the Company's lender and subject to
certain restrictions regarding its availability. The Company has £1.4m of
unrestricted cash, this low unrestricted cash balance was expected given the
debt repayment and the continued decline in rent payment from non-performing
tenants

·    As announced on the 29 September 2023, the Company exchanged
contracts on the sale at auction of 137 properties for £22.8m which are
expected to complete in late October 2023.  AEW, as Investment Manager to the
Company, identified a portfolio of properties that were in poor condition,
largely vacant and requiring significant capital expenditure in order to be
brought up to specification. Of the properties exchanged for sale, 100
properties were subject to leases with tenants in liquidation which will be
surrendered prior to completion

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

 

Shareholder engagement

·    AEW continues engagement with the Company's major shareholders

·    To enable engagement with all shareholders, AEW intends to provide
quarterly presentations open to all shareholders.

·    The first quarterly online presentation open to all shareholders will
be held on the 19 October 2023. Further details of how to join will be
released by RNS on or before 12 October 2023.

 

Board succession

·    Further to the Company's announcement on 4 September regarding the
initiation of a formal and phased Board succession process, the Company
announces that it has appointed Fidelio Partners to identify and evaluate
potential new board members. Further announcements will be made in due course.

Portfolio Metrics

Set out below are certain unaudited key portfolio metrics at 29 September
2023.

 As at:                                                        31 August 2023                      29 September 2023
 Number of properties                                          2,473                               2,432
 Number of beds                                                11,861                              11,695
 Number of tenants                                             29                                  31
 Annual rent roll (1 2)                                        £53.9m                              £48.5m

 In period:                                                    1(st) June 2023 to 31 August 2023   1 September 2023 to 29 September 2023
 Properties sold                                               -                                   41
 Properties exchanged for sale                                 41(3)                               137
 Number of assets with asset management initiatives completed  100                                 146

 Rent collection (2)                                           £0.9m                               £0.1m
 % rent collection (2)                                         7%                                  3%

(1) Contracted rent as at period end

(2) Excluding 184 (period to 31 August: 115) properties under separate
management agreements

(3) Previously reported as 40 - two properties were sold as one auction lot in
the August auction sales

 

 Geographic Region         Number  of Beds   Number  of Properties   Number of Properties (%)

 As at 29 September 2023
 North East                2,522             790                     32.5%
 North West                2,008             417                     17.2%
 Yorkshire and the Humber  1,882             336                     13.8%
 East Midlands             1,184             206                     8.5%
 West Midlands             540               86                      3.5%
 South West                1,408             277                     11.4%
 London                    685               88                      3.6%
 East of England           126               23                      0.9%
 South East                494               68                      2.8%
 Wales                     846               141                     5.8%
 Total                     11,695            2,432                   100.0%

 

 Top 10 Tenants                                        Number of Beds  Number of Properties  % of portfolio annual contracted rent

 As at 29 September 2023
  One (Housing & Support) CIC                          1,200           234                   13.4%
  The Big Help Project                                 1,303           353                   12.5%
  Supportive Homes CIC *                               1,046           209                   12.3%
  GEN LIV UK C.I.C. *                                  571             107                   7.2%
  Bloom Social Housing CIC                             645             94                    6.2%
  CG Community Council                                 386             54                    5.8%
  Dovecot & Princess Drive Community Association       396             52                    5.2%
  Noble Tree Foundation Limited                        527             143                   5.1%
  LTG Vision CIC                                       627             192                   4.5%
  Community Restore CIC                                397             84                    3.9%
 TOTAL                                                 7,098           1,522                 76.1%
 * In liquidation

 

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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/)

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