Home REIT PLC Monthly Update (8625Y)

TIDMHOME

RNS Number : 8625Y

Home REIT PLC

08 January 2024

8 January 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 December 2023.

Summary

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

   --    Rent collection including arrears representing 12% of rent invoiced during the month. 

-- AEW continues to make progress in obtaining control of Home REIT's assets in respect of non-performing tenants. AEW is pursuing all strategies available to the Company including taking legal action on selected tenants that are not engaging constructively and continue to withhold payment of rent.

-- The Company had GBP15.8m cash balances as at 31 December 2023 of which GBP5.4m is unrestricted.

-- As announced on 20 December 2023, auction sales have continued. A further 81 properties exchanged for GBP16.4m in December with completion expected in January. Further receipts are expected in respect of the properties which exchanged for sale in September, November and December that have not yet completed.

-- Repayment of GBP25.6m of debt to the Company's lender in December comprising a cash repayment of GBP23.1m and net break gains of GBP2.5m applied to loan principal. Total borrowings reduced to GBP172.7m (from GBP198.3m the prior month).

-- An additional 287 internal property inspections have been completed in December taking the total to 1,515 as at 31 December 2023. The inspection programme is due to continue during January and February.

-- On 20 December 2023, the Company announced an updated valuation of the Company's property portfolio based on draft valuation reports from JLL. The unaudited fair market value of the 2,473 properties held at 31 August 2023 was GBP412.9m.

FOR FURTHER INFORMATION, PLEASE CONTACT:

 
 FTI Consulting (Communications   [e-mail] 
  Adviser)                               [phone] 
  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

Portfolio assessment and tenant engagement

-- As part of the stabilisation strategy AEW continues to undertake a comprehensive review and data collection exercise of the property portfolio. Analysis of the underlying property condition is paramount as part of an exercise to determine suitability, capital expenditure requirements and income and capital returns prospects as AEW works to rationalise the portfolio.

-- Of the 1,093 property inspections undertaken by Vibrant, occupancy (at least one bed occupied) is 75% as at the date of the property inspections with 25% being vacant (whole building).

-- The inspection programme requires significant co-ordination with multiple parties and is due to continue throughout January and February.

-- As previously announced on 20 December 2023, at a series of public auctions held in December, the Company exchanged on the sale of 80 properties. A further property exchanged post auction taking the total anticipated sales proceeds to GBP16.4m with completion expected in January. 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 many tenants to facilitate restructuring of leases and rationalisation of the portfolio.

Rent Collection, Financial position and related matters

-- Rent collected including arrears represents 12% of the rent invoiced in the month of December. It is anticipated that rent collection will vary month on month in the near term as AEW continue to work on stabilising the portfolio. AEW is pursuing all strategies available to the Company including taking legal action on selected tenants that are not engaging constructively and continue to withhold payment of rent.

-- Following previous announcements of exchanges at auction, 98 properties completed during December for a total of GBP26.5m and 162 properties remain exchanged for sale at total of GBP25.7m and are expected to complete in January.

-- 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 has repaid GBP25.6m of debt to the Company's lender in December comprising a cash repayment of GBP23.1m and a net break gain of GBP2.5m also being applied in repayment of the debt. Due to reductions in future interest swap rates the potential value of the net break gains has reduced significantly.

-- As at 31 December 2023, the Company has total borrowings of GBP172.7m, comprising a GBP82.4m interest-only term loan, repayable in 2032, with a fixed rate of 2.07 per cent. per annum, and a GBP90.3m interest-only term loan, repayable on 2036, with a fixed rate of 2.53 per cent. 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 had GBP15.8m cash balances as at 31 December 2023 of which GBP5.4m 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

-- On 20 December 2023, the Company announced an updated property valuation following the issuance by JLL, as external valuer, of draft valuation reports, 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

-- JLL has externally inspected 2,391 properties comprising 97 per cent. Of the Company's portfolio, in addition to 195 internal inspections as at 20 December 2023.

-- The valuations for the periods referred to above were prepared in accordance with the current Royal Institution of Chartered Surveyors' Valuation - Global Standards, effective from January 2022, incorporating the IVS, and the RICS Valuation - Global Standards 2017 UK national supplement (the "RICS Red Book"). JLL expects to report values in the region of those set out in the table below. They may be subject to further amendment due to the ongoing inspection programme and subject to completion of the formal valuation process. These valuations are unaudited.

 
                         31 August 2023   28 February   31 August 
                                              2023         2022 
 Number of properties        2,473           2,473        2,239 
                        ---------------  ------------  ---------- 
 Portfolio valuation       GBP412.9m       GBP422.9m    GBP414.4m 
                        ---------------  ------------  ---------- 
 

-- The draft valuation of the Company's property portfolio as at 31 August 2023 represents 42.3% of the unaudited historical acquisition costs of GBP977.0m (excluding purchase costs). The reduction in the property valuation is principally a result of a re--assessment of the quality of the assets through the on--going inspection programme, and of the covenant strength of the tenants, several of which entered liquidation in 2023.

-- The issuance of the valuation reports is a key step in the process for the audit and publication of the Company's annual results for the periods ending 31 August 2022 and 31 August 2023. However, the audit process remains on-going and is subject, amongst other things, to the completion of the valuation process, the continuing internal inspection programme (which requires significant co-ordination with multiple parties), and the application of revised accounting policies back to inception. Accordingly, the Company is not in a position to publish an estimated net asset value at this time. The Board and AEW are committed to continuing to work at pace with BDO to publish the audited results in a timely manner.

-- 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. 
   --    The next monthly update is expected to be announced on 5 February 2024. 

-- The second quarterly online presentation open to all retail shareholders is expected to be held on 26 January 2024. Further details will be provided in due course.

Board succession

-- Further to the Company's previous announcements, the Company has made good progress in identifying a new independent Non-Executive Chair. Following a comprehensive search and process, a preferred candidate has been selected and the individual is currently completing their own due diligence. The Company remains well placed to make this proposed appointment in advance of the restoration of the listing of its shares. It is expected that the whole Board will transition entirely within 12 months as announced on 4 September 2023.

Portfolio Metrics

Set out below are certain unaudited key portfolio metrics at 31 December 2023.

 
 As at:                                    31 August 2023    31 December 2023 
 Number of properties                               2,473               2,209 
 Number of beds                                    11,861              10,416 
 Number of tenants (1) (2)                             29                  27 
 Annual rent roll (1 2 3)                        GBP53.9m            GBP42.1m 
 
   In period:                           1 June 2023 to 30     1 December 2023 
                                            November 2023      to 31 December 
                                                                         2023 
 Properties sold                                      165                  98 
 Properties exchanged for 
  sale                                            179 (4)                  81 
 Number of assets with asset                          284                   - 
  management initiatives completed 
 Rent collected in period                         GBP2.3m             GBP0.4m 
  (1 2) 
 Rent collection % (1) (2 
  5)                                                   9%                 12% 
 
 

(1) Excluding 157 properties under separate management agreements (184 properties as at 30 November 2023)

(2) Excluding 38 properties under property management agreements with HOME having direct AST leases with occupiers

(3) Contracted rent as at period end

(4) 2 properties previously exchanged for sale have fallen through

(5) Rent collection - rent collected including arrears /rent invoiced

 
 Geographic Region             Number       Number         Number of 
  As at 31 December 2023      of Beds    of Properties    Properties 
                                                                 (%) 
--------------------------  ---------  ---------------  ------------ 
 North East                     2,475              775         35.1% 
 North West                     1,912              402         18.2% 
 Yorkshire and the Humber       1,555              289         13.1% 
 East Midlands                  1,162              226         10.2% 
 West Midlands                  1,083              190          8.6% 
 South West                       757              125          5.7% 
 London                           566               76          3.4% 
 East of England                  286               35          1.6% 
 South East                       494               68          3.1% 
 Wales                            126               23          1.0% 
--------------------------  ---------  ---------------  ------------ 
 Total                         10,416            2,209        100.0% 
 
 
 Top 10 Tenants                          Number     Number of       % of portfolio 
  As at 31 December 2023                of Beds    Properties    annual contracted 
                                                                              rent 
------------------------------------  ---------  ------------  ------------------- 
 One (Housing & Support) CIC              1,200           234                15.7% 
 Big Help Project Ltd                     1,303           353                14.7% 
 Bloom Social Housing CIC                   645            94                 7.3% 
 CG Community Council                       386            54                 6.7% 
 Dovecot & Princess Drive Community 
  Association                               396            52                 6.2% 
 Noble Tree Foundation Limited              527           143                 6.0% 
 Supportive Homes CIC*                      436            85                 5.7% 
 Gen Liv UK CIC*                            351            66                 5.1% 
 LTG Vision CIC                             598           187                 5.0% 
 Mears Ltd                                  747           177                 4.6% 
 Total                                    6,589         1,445                77.0% 
 * In liquidation 
 

Tenants in liquidation (Supportive Homes CIC, GEN LIV UK C.I.C. and Serenity Support CIC, Marigold Housing account for 12.2% of the annual contracted rent as at 31 December 2023).

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