MILL RESIDENTIAL REIT PLC - Proposed cancellation from trading and trading update

15 October 2015

Mill Residential REIT plc

("MRR", the "Company" or the "Group")

Proposed cancellation of admission to trading on AIM and trading update

The Company announces that, following a review by the Directors of the Company’s continuing strategy and its day to day operation, further to the Company’s interim results on 25 June 2015 (“Interim Results”), the Directors have concluded that it is in the overall interests of the Company and its Shareholders if the admission of the Ordinary Shares to trading on AIM is cancelled and the Company commences a Members’ Voluntary Liquidation following such cancellation.

Under the AIM Rules, it is a requirement that cancellation of admission to trading on AIM must be approved by not less than 75 per cent. of shareholders voting in general meeting. Accordingly, the notice of General Meeting set out in a circular to shareholders which will be posted today contains a special resolution to approve the application to the London Stock Exchange for cancellation of admission of the Company's shares to AIM. If the resolution is approved, it is expected that trading in the Ordinary Shares on AIM will cease at the close of business on 16 November 2015, with Cancellation expected to take effect at 7.00 a.m. on 17 November 2015.

Background to and reasons for the proposed Cancellation

At IPO, the intention of the Company was to grow rapidly from its small size, grasping the market opportunity of being the first mainstream UK residential REIT and seeking out further equity funding to deploy in opportunistic investments. The Company’s stated strategy of investing in rental properties aimed to provide the Company with reliable and increasing rental income over time, together with steady sustained growth in net asset value.

Since the Company's admission to trading on AIM, the asset management team has identified, evaluated and recommended a number of acquisition targets which meet the Company's investment criteria. However, obtaining equity funding for these has not been achieved and so none have been pursued to a successful conclusion. The management team engaged in an equity fund-raising supported by the Company’s brokers. The fund-raising process included a significant number of third-party institutional investors. While a number of potential investors made indications of interest, the Company was unable to attract capital of sufficient scale to grow the business. Whilst the residential investment sector is attracting investor interest from major institutions, some institutions are initiating their own larger competing offers via unquoted funds or direct investment. In addition, the size of the Company was seen by some institutions as too small to attract investment.

Without market support, the Company's strategy to acquire property portfolios proved challenging as the Company could only offer relatively illiquid shares and not cash to effect a transaction. Furthermore, after allowing for liquidity and contingencies, the cash held in the Company has not been sufficient to make a sizeable investment. Notwithstanding the renegotiation of administrative expenses in April 2015, which led to a 27 per cent. reduction in such costs (referred to in the Interim Results), the current costs of operation as a listed vehicle exceed income, resulting in the continuing reduction in the Company’s net asset value.

The Board has considered a number of options such as the Company continuing as a listed cash shell after the sale of investment properties and the return of a majority of cash to Shareholders by way of a dividend. However, the Board would also need to seek new investment and a new board of directors to implement any revised investment strategy. The Board considered that the potential for significant costs, uncertainties and risks associated with this option outweighed the potential premium that any new investor might attach to the Company as a cash shell.  The Board also considered other ways of returning surplus capital to Shareholders but concluded this was too costly and could generate dividends that would be taxable to Shareholders as opposed to a return of capital.

The Board has therefore reluctantly decided that it is in the best interests of Shareholders to effect the Cancellation and will make arrangements for an orderly sale of assets and return of cash by way of a Members’ Voluntary Liquidation, which will maximise the return to Shareholders.  It is anticipated that, assuming the Board’s recommendations receive required shareholder approval, the Proposed Liquidators would plan to make orderly distributions of capital to Shareholders on the sale of the seed portfolio on an incremental basis. Based on the Company’s sale strategy of the seed portfolio, the Proposed Liquidators anticipate that the final distribution may take up to 10 months to complete from the date of this announcement.

Taking into account prevailing market conditions and the expected costs of both selling the investment properties and winding up the Company, the Board estimate that, should the Company take the recommended course of action, the surplus to be distributed to Shareholders by the Proposed Liquidators may be between £2.95 and £3.15 million (or between 85 and 90 pence per share). These amounts are provided for guidance only and are not certain as they are dependent on factors outside the control of the Board, including sales proceeds, costs and taxation.

The Company has received irrevocable undertakings from the Directors and certain Shareholders (whose holdings amount in aggregate to 53.97 per cent. of the issued share capital of the Company) that they will vote in favour of the Cancellation and the Members’ Voluntary Liquidation. Therefore, it is expected that the Resolutions will be passed at the General Meeting.

Trading update

The Company’s unaudited net assets as at 30 September 2015 were £3,209,000, including cash of £765,000, resulting in a net asset value per share as at 30 September 2015 of 91.6 pence. 

The Company announces that its wholly-owned subsidiary, Investors in Housing (GP) Limited, has exchanged contracts for the sale of 160 Walnut Tree Close for a cash consideration of approximately £405,000, after costs. The contract is conditional on completion and is expected to complete in the next 10 business days. The net proceeds of this sale will be retained as cash and then distributed to Shareholders in accordance with the proposals included in this announcement regarding the Company’s intention to dispose of its current portfolio.

This property and one other property in the MRR portfolio require refurbishment in order for them to be able to be re-let.  The Board has decided that rather than incurring the refurbishment costs the Company should dispose of these properties. The other property currently has an accounting value of £395,000.

At the date of this document, an offer has been accepted on the other property and exchange of contracts is expected shortly. A further announcement will be made at that time.

The combined sales price is in excess of the aggregate value of the two properties as set out in the interim results which were announced on 25 June 2015.

Cancellation Process

Under the AIM Rules, Cancellation requires the expiration of a period of not less than 20 clear Business Days from the date on which notice of the intended Cancellation is given to the London Stock Exchange. The Company has notified the London Stock Exchange of the proposed Cancellation. Subject to the passing of Resolution 1 (as set out in the Notice of General Meeting), Cancellation will occur no earlier than five clear Business Days after the General Meeting and it is expected that trading in the Ordinary Shares on AIM will cease at the close of business on 16 November 2015, with Cancellation expected to take effect at 7.00 a.m. on 17 November 2015.

Shareholders should be aware that if Cancellation is approved by Shareholders and takes effect, they will as from that time cease to hold shares in a company whose shares are admitted to trading on AIM. Following Cancellation, there will be limited opportunities for Shareholders to realise their investment in the Company other than pursuant to the proposed Members’ Voluntary Liquidation.

Trading in the Ordinary Shares after Cancellation

Following Cancellation, the Ordinary Shares will not be traded on any public market and the CREST facility will be cancelled. The Ordinary Shares will remain capable of being transferred in paper form for a limited time until the Members’ Voluntary Liquidation is completed with the sanction of the Proposed Liquidators. Transfers of interests in shares in certified form should be sent to the Company’s registrars, Share Registrars Limited, Suite E, First Floor, 9 Lion and Lamb Yard, Farnham, Surrey GU9 7LL. Existing share certificates remain valid until completion of the Members’ Voluntary Liquidation.

Members’ Voluntary Liquidation

If the Resolutions are approved by Shareholders, the Company will commence a Members’ Voluntary Liquidation following the Cancellation and the appointment of a liquidator is accordingly required. Subject to Resolution 4 being passed, the Proposed Liquidators will be appointed following the Cancellation and immediately upon the commencement of the Members’ Voluntary Liquidation.

In a Members’ Voluntary Liquidation, the powers of the directors cease (save to the extent that the Company in a general meeting or the liquidators sanction otherwise) and the liquidators assume responsibility for the Company’s affairs.  The liquidators deal with the realisation of assets, the agreement and discharge of liabilities and the distribution of the Company’s surplus funds to Shareholders as and when funds permit.  Prior to distributing cash to Shareholders, the liquidators must be satisfied that either all liabilities have been settled or that sufficient cash has been retained to discharge or provide for all actual and contingent liabilities.  This involves an initial period during which the liquidators write to all known creditors, actual and contingent, and advertise for claims against the Company being liquidated, specifying a deadline of at least 21 days from the date of the notice by which any claims must be notified to them.  Cash can be released as and when the liquidators determine that all actual and contingent liabilities have been paid, provided for or discharged and there is surplus cash available for distribution.  This process can take time, particularly if there are liabilities such as taxation to be agreed with HM Revenue & Customs or other contingent liabilities that are initially difficult to quantify or agree.  It is therefore usual for cash to be distributed to Shareholders in a series of instalments, the amount and timing of each being dependent on the cash available and the status of known and potential liabilities.

Resolution 5 (as set out in the Notice of General Meeting) seeks Shareholder approval to fix the Proposed Liquidators’ remuneration at their normal charging rates according to the time properly spent by them and members of their staff in attending to matters arising in the winding-up of the Company (including those falling outside their statutory duties) and to authorise them to draw sums on account of their remuneration from time to time as the Members’ Voluntary Liquidation progresses.  The Proposed Liquidators will present full details of their remuneration to Shareholders as the liquidation progresses.

The shareholder circular will be posted on the Company's web site www.millresidentialreit.co.uk and copies are available from the Company's registered office at 8th Floor, Alhambra House, 27-31 Charing Cross Road, London WC2H 0AU.

For further information please contact:

Mill Residential REIT Plc Ian Ellis (Chairman)	020 7930 8600
Sanlam Securities UK (Nomad and Joint broker) Virginia Bull	020 7628 2200
finnCap Limited (Joint broker) Tom Jenkins	020 7220 0500
ALL MEDIA ENQUIRIES TO:
Positive Profile (Financial PR) Henry Gewanter	07774 228845

   

Definitions
“Admission”	admission to trading on AIM;
“AIM”	AIM, the market of that name operated by the London Stock Exchange;
“AIM Rules”	the “AIM Rules for Companies” published by the London Stock Exchange from time to time;
“Board”	the board of directors of the Company;
“Business Day”	a day, other than a Saturday or Sunday or public holiday in England and Wales, on which banks are open in London for general commercial business;
“Cancellation”	the cancellation of admission of the Ordinary Shares to trading on AIM;
“Company”	Mill Residential REIT plc;
“CREST”	the relevant system (as defined in the CREST Regulations) in respect of which Euroclear UK & Ireland Limited is the Operator (as defined in the CREST Regulations);
“CREST Regulations”	the Uncertificated Securities Regulations 2001 (SI 2001/3755);
“Directors”	the directors of the Company;
“General Meeting”	the general meeting of the Company to be held at the offices of the Company’s solicitors Nabarro LLP at 125 London Wall, London EC2Y 5AL at 10.00 a.m. on 3 November 2015 or any adjournment thereof;
“Group”	the Company and its subsidiary;
“IPO”	initial public offering;
“London Stock Exchange”	London Stock Exchange plc;
“Members’ Voluntary Liquidation”	a Members’ Voluntary Liquidation within the meaning of the Insolvency Act 1986 and the Insolvency Rules 1986 (SI 1986/1925);
“Notice of General Meeting”	the notice convening the General Meeting;
“Ordinary Shares”	the ordinary shares of £0.10 each in the capital of the Company;
“Proposed Liquidators”	John David Thomas Milsom and Allan Watson Graham of KPMG LLP, 15 Canada Square, London E14 5GL;
“Resolutions”	the resolutions to be proposed at the General Meeting to obtain the approval of Shareholders to the Cancellation and the Members’ Voluntary Liquidation, as set out in the Notice of General Meeting (and “Resolution” means any one of the Resolutions as the context requires);
“Shareholders”	holders of Ordinary Shares from time to time;
“UK” or “United Kingdom”	the United Kingdom of Great Britain and Northern Ireland; and

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