REG - Home REIT PLC - Monthly Update

Home ReitAnnouncement

05/03/2024 07:00

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RNS Number : 5489F  Home REIT PLC  05 March 2024

 

5 March 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 February 2024.

Summary

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

·    As announced on 15 February 2024, 119 properties exchanged for sale
at auction for a total of £5.7m with completion expected during March.

·    Repayment of £13.7m of debt to the Company's lender in February
comprising a cash repayment of £11.7m and net break gains of £2.0m applied
to loan principal. Total borrowings reduced to £149.1m.

·    The Company continues to make encouraging progress on re-financing,
as part of the strategy for the long-term financial stability of the Company.

·    An additional 82 internal property inspections have been completed in
February taking the total to 1,904 as at 29 February 2024. The inspection
programme is due to continue throughout March.

·    The Company intends to bring legal proceedings against those parties
it considers are responsible for wrongdoing. The Company announced on 13
February 2024 the commencement of a Financial Conduct Authority ("FCA")
investigation into the Company and the Company will cooperate fully with the
FCA in its work.

 

Stabilisation Period Update

The Company entered a stabilisation period in August 2023, following the
approval of a revised investment policy. AEW is now approximately six months
into the stabilisation period and a very significant amount of effort has been
undertaken to provide a firmer platform for the future of the Company. The AEW
team, along with the Board, continues to stabilise the financial position of
the Company in line with the Investment Policy. Since August 2023, the Company
has completed disposals totalling £74.6m (394 properties), reduced bank debt
from £220.0m to £149.1m, increased unrestricted cash and has initiated a
re-financing process that is progressing well.

Substantial tenant engagement has occurred during this time, with lease
surrenders agreed in respect of 315 properties and specific strategies in
place with each tenant to drive a future improvement in rental collection,
including via re-tenanting. In addition, 77% of the property portfolio has
been subject to internal inspection. On the corporate side, updated draft
valuation reports have been produced by Jones Lang LaSalle Limited ("JLL") as
part of the process to produce the financial results for past periods and
achieve a restoration of trading of the Company's shares. Overall, AEW has
looked to establish firm foundations from which to move forward and believe
the Company is able to take the next step forward in terms of implementation
of the stabilisation strategy with re-tenanting. AEW has several initiatives
ongoing and expects to make further positive announcements in the near future.

 

Portfolio and Financial Highlights

 

 Financial Position (Unaudited)                                      As at                             As at

                                                                     31 August 2023                    29 February 2024
 Valuation:
 Draft August 2023 Valuation                                         £412.9m                           £339.2m (1)
 Number of properties                                                2,473                             2,079
 Cash and Borrowings:
 Unrestricted Cash                                                   £0.8m                             £7.4m
 Total Cash                                                          £13.5m                            £12.5m
 Borrowings                                                          £220.0m                           £149.1m
 Income:
 Annual Contracted Rent                                              £53.9m                            £38.6m
 Tenants (2 3)                                                       29                                26
 Properties under lease to tenants                                   2,358                             1,901
 Properties under separate management agreement                      115                               119
 Properties under property management agreements - Direct Let (PRS)  -                                 59

                                                                     To date                           Month

                                                                     1 September 2023 to               1 February 2024 to

                                                                     29 February 2024                  29 February 2024
 Investment Activity:
 Proceeds from properties sold in the period                         £74.6m                            £7.8m
 Number of properties sold in period                                 394                               28
 Price for properties exchanged and not completed at period end      £15.1m                            £5.7m
 Number of properties exchanged and not completed at period end      253                               119
 Rent collection:
 Rent collection (4) %                                               11%                               11%
 Rent collection total                                               £2.5m                             £0.4m
 Inspections:
 Completed                                                           1,904                             82

 Occupancy: (at date of inspection on 1,463 Vibrant inspections)

 Occupancy (at least one bed occupied)                                                                 78%

 Vacant (whole building)                                                                               22%

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(1) Proforma value at 29 February 2024 being the draft JLL August 2023
valuation (as announced on 20 December 2023) less disposals as valued in the
draft JLL August 2023 valuation.

(2) Excluding properties under separate management agreements

(3) Excluding properties under property management agreements with HOME having
direct AST leases with occupiers

(4) ( )Rent collection - rent collected including arrears /rent invoiced for
the period

 

 

 

FOR FURTHER INFORMATION, PLEASE CONTACT:

 FTI Consulting (Communications Adviser)  HomeREIT@fticonsulting.com (mailto:HomeREIT@fticonsulting.com)

 Dido Laurimore                           +44 (0)20 3727 1000

 Eve Kirmatzis

 Oliver Harrison

 

The Company's LEI is: 213800A53AOVH3FCGG44.

 

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

 

Portfolio assessment

·    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 return prospects for each
asset as AEW works to rationalise the portfolio as part of the stabilisation
strategy.

·    The inspection programme continues to require significant
co-ordination with multiple parties and is due to continue throughout March.
Vibrant and AEW continue to prioritise completion of the inspection programme
with 77% of the portfolio inspected as at 29 February 2024.

·    As AEW continues to obtain increased visibility on underlying
occupancy from tenants, the majority of the portfolio has currently been
identified as private rented sector ("PRS") rather than homeless accommodation
backed by exempt rents from local authorities. However, PRS occupiers could
meet the criteria of broader Social Use, as defined in the current Investment
Policy, based on the location of the properties and the type of accommodation
they provide, but this remains to be determined over the stabilisation period.

 

Investment Activity

·    As announced on 15 February 2024, 119 properties exchanged for sale
at auction for a total of £5.7m being £1.0m (15.5%) below the draft JLL
August 2023 values. The majority of the properties exchanged were below the
portfolio average lot size which may cause a greater percentage variation when
comparing sale price to the August draft valuation.  Overall, the value of
properties exchanged at auction since August 2023, has been £0.3m (0.3%)
below the draft JLL August 2023 valuations.

·    Following announcements of exchanges at auction in previous months,
28 properties completed during February for a total of £7.8m and 253
properties remain exchanged for sale for a total of £15.1m with completion
expected in March.

·    The overall sales programme continues with total completed sales of
£74.6m (394 properties) since August 2023, £0.9m (1.2%) above the draft JLL
August 2023 valuations.

 

Rent Collection and tenant engagement

·    AEW continues to focus on obtaining control of the portfolio with
legal action being taken against non-performing tenants. The Company is
progressing negotiations with a number of tenants to facilitate restructuring
of leases and rationalisation of the portfolio, further announcements will be
made in due course.

·    Rent collected on operating leases including arrears represents 11%
of the rent invoiced for the month of February.   AEW continues to work with
selected tenants on payment plans. It is anticipated that rent collection will
vary month on month in the near term as AEW continues to work on stabilising
the portfolio and pursues legal action.

·    The Company is pleased to report that AEW is in active dialogue with
a number of providers who have significant demand for properties for Supported
Living and other forms of Social Use accommodation.

·    AEW is currently undertaking a comprehensive onboarding process for
these new providers which involves qualitative and quantitative assessments
including desktop and physical assessments of their operations and existing
stock.

·    Further announcements on re-tenanting will be made in due course.

 

Financial position and related matters

·    Although AEW continues to implement strategies to increase rental
income, further sales are expected in the near term as part of the strategy to
stabilise the financial position of the Company.

·    The Company had £12.5m cash balance as at 29 February 2024 of which
£7.4m is unrestricted.

·    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 £13.7m of debt to the Company's lender in
February comprising a cash repayment of £11.7m and a net break gain of £2.0m
also being applied in repayment of the debt. A total of £70.9m of debt has
been repaid since the Company entered the stabilisation period during August
2023.

·    As at 29 February 2024, the Company has total borrowings of £149.1m,
comprising a £58.8m 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.

·    The Company is making encouraging progress on re-financing, as part
of the strategy for the long-term financial stability of the Company.

·    The Company has incurred "exceptional" expenses of c. £16m since
January 2023. The exceptional costs of £16m include £5m in relation to
property legal and disposal costs, £4m for strategic advisers, £3m for legal
advisers and the Alvarez & Marsal report, £2m for valuation work and
inspections, and £1m for accounting advisers' fees in relation to outstanding
annual accounts. The Board continues to review all third‐party appointments
and manage costs.

 

Valuation, Publication of the annual and interim reports

·    JLL, as external valuer, is undertaking valuations of the properties
as at 29 February 2024 on the basis of fair value.   Relevant announcements
on the portfolio valuation will be made in due course.

·    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 for the relevant financial
periods and the application of revised accounting policies back to
inception. Access constraints remain a significant challenge for the
completion of the internal inspections.

·    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

·    As announced on the 29 February 2024, the Annual General Meeting of
the Company (AGM) was held and the resolution to re-elect Michael O'Donnell as
Director was approved with 99.3% in favour.

·    AEW and the Board continues engagement with the Company's
shareholders.  AEW's third quarterly online presentation open to all retail
shareholders is expected to be held in late April 2024.  Further details will
be provided in the next monthly report.

·    The next monthly update is expected to be announced on Thursday 4
April 2024.

 

FCA Investigation and Potential Litigation

·    The Company announced on 13 February 2024 the commencement of a
Financial Conduct Authority ("FCA") investigation into the Company and the
Company will cooperate fully with the FCA in its work.

·    The Company intends to bring legal proceedings against those parties
it considers are responsible for wrongdoing.  The Company cannot comment any
further at this stage as to do so may prejudice the Company's position in any
potential proceedings.  Any relevant announcements in this regard will be
made at the appropriate time.

 

Board succession

·    Good progress is being made in identifying new independent
Non-Executive Directors including a new Chair of the Audit Committee with the
process being 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.

 

 Geographic Region         Number  of Properties   Number of Properties (%)

 As at 29 February 2024
 North East                756                     36.4%
 North West                383                     18.4%
 Yorkshire and the Humber  259                     12.5%
 East Midlands             198                     9.5%
 West Midlands             184                     8.9%
 South West                110                     5.3%
 London                    75                      3.6%
 South East                68                      3.3%
 East of England           23                      1.1%
 Wales                     23                      1.0%
 Total                     2,079                   100.0%

 

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

 As at 29 February 2024
 Big Help Project Ltd                                352 (1)               16.2%
 One (Housing & Support) CIC                         213                   16.0%
 CG Community Council                                54                    7.4%
 Dovecot & Princess Drive Community Association      52                    6.7%
 Bloom Social Housing CIC                            77                    6.7%
 Noble Tree Foundation Limited                       143                   6.6%
 LTG Vision CIC                                      180                   5.3%
 Mears Ltd                                           177                   5.0%
 Ashwood Housing Solutions CIC                       186                   3.9%
 Gen Liv UK CIC (2)                                  46                    3.8%
 Total                                               1,480                 77.6%

(1) 1 property shown as Big Help Project Ltd (in previous updates) is under
lease to another tenant

(2) In liquidation

 

Tenants in liquidation (GEN LIV UK CIC, Supportive Homes CIC, Marigold Housing
and Eden Safe Homes CIC account for 8.2% of the annual contracted rent as at
29 February 2024).

 

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