TIDMHOME
RNS Number : 4827H
Home REIT PLC
28 July 2023
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN
PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION
WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR
REGULATIONS OF SUCH JURISDICTION
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
FOR IMMEDIATE RELEASE
28 July 2023
Home REIT plc
("Home REIT" or the "Company")
Notice of General Meeting to consider changes to the Investment
Policy and additional corporate updates
The Company announces that it has today published a circular
(the "Circular") containing details of proposed amendments to the
Company's investment policy and notice of a general meeting to be
held at the offices of FTI Consulting at 200 Aldersgate Street,
London EC1A 4HD on 21 August 2023 at 9.00 a.m. Details of the
proposals, which have been extracted from the Circular without
material amendment, are set out below.
On 23 May 2023, the Company announced that, following a
competitive process, it has entered into an agreement with AEW UK
Investment Management LLP ("AEW") pursuant to the terms of which
AEW has been appointed to provide property advisory services to the
Company. In addition, AEW will be appointed as the Company's
Investment Manager and AIFM, subject to the approval by
Shareholders of the proposed changes to the Company's existing
investment policy and Alvarium Fund Managers (UK) Limited ceasing
to act as AIFM. The FCA has approved AEW's appointment as AIFM.
AEW is now taking steps to assess and stabilise the property
portfolio and the financial condition of the Company and will seek
to maximise income and capital returns. AEW's immediate priorities
will be a detailed assessment of the existing portfolio and tenant
engagement, with a focus on understanding any tenant issues with
properties, the identification of underlying occupancy of leased
properties and an assessment of tenants' abilities to meet rental
payments with a view to improving rent collection and maximising
Shareholder value. This process will require a period of
stabilisation, but it is the ultimate belief of the Board and AEW
that the Company can deliver a sustainable business model whilst
retaining the longer-term social objective of helping to alleviate
homelessness in the UK. A key first step in this process is to make
changes to the Company's investment policy.
Following consideration with AEW and the Company's financial
adviser, Smith Square Partners LLP, and following consultation with
key Shareholders, the Board believes it is in the Company's,
Shareholders' and stakeholders' best interests to commence urgently
this process of amending the Company's investment policy.
Material changes to the investment policy require the approval
of Shareholders by ordinary resolution at a general meeting. The
Directors are therefore convening a general meeting to seek the
approval of Shareholders for the proposed changes.
The Resolution that will be put to Shareholders at the General
Meeting is to approve the proposed changes to the Company's
investment policy (the "New Investment Policy") (the "Proposal").
For the reasons set out in detail below, the Directors of the
Company are recommending that Shareholders vote in favour of the
Resolution at the General Meeting.
Additional corporate updates
For the period 1 May to 30 June, the Company has demanded
GBP8.77m of rent, of which 7% has currently been collected. As
noted above and in the Circular, the proposed changes to the
Investment Policy are required to enable AEW to take steps to
assess and stabilise the property portfolio and improve rent
collection through extensive tenant engagement and asset management
initiatives.
The Company is pleased to announce that it has appointed Jones
Lang LaSalle Limited ("JLL") as its new property valuer. In
addition, the Company has appointed a third party to complete
inspections of each of the properties in the Company's portfolio, a
process which has now commenced. This is a key step towards the
completion of the annual and interim accounts and the subsequent
restoration of trading in the Company's shares. The inspection and
valuation process is expected to take a number of months given the
number of properties in the Company's portfolio and, accordingly,
the Company does not expect to publish its audited results for the
period to 31 August 2022 until late 2023 at the earliest.
Further updates on corporate development will be made as part of
AEW's commitment to provide monthly updates on progress against
priorities and matters affecting the portfolio, as outlined in the
Circular.
Summary of the key changes to the investment policy
Following consultation with major Shareholders, the Directors
are proposing the following key changes to the investment policy. A
full mark-up of the proposed changes is set out in the
Circular.
The Listing Rules require any proposed material changes to the
Company's published investment policy to be submitted to the FCA
for prior approval and the FCA has approved the proposed New
Investment Policy. The Listing Rules also require Shareholder
approval prior to any material changes being made to the Company's
published investment policy; this approval will be sought at the
General Meeting. Any future material changes to the New Investment
Policy will also require the prior approval of the FCA and
Shareholders.
The New Investment Policy contemplates a period of stabilisation
and thereafter a longer-term policy. The key changes are as
follows:
(i) The introduction of a stabilisation period
Pursuant to the New Investment Policy, the immediate priority of
the Company will be stabilising the Company's financial condition
through initiatives to maximise the income and capital returns from
the Company's existing property portfolio. This will be referred to
as the "Stabilisation Period" and will be in place from 22 August
2023 (the "Effective Date") until the second anniversary of the
Effective Date, or such later date (not being later than the third
anniversary of the Effective Date) approved by the Board.
During the Stabilisation Period, the Company is expecting to
undertake a programme of re-tenanting and rationalisation of the
portfolio to stabilise the Company's financial condition and
satisfy the objective to maximise income and capital returns.
In deciding whether to extend the Stabilisation Period for up to
an additional year, the Board will have regard to a number of
factors including if: (i) the portfolio is capable of being
operated according to the Post-Stabilisation Period investment
policy; (ii) rent collection has stabilised; (iii) the Company has
recommenced dividend payments; (iv) the Company's annual and
interim reports and accounts are being approved and published in
accordance with its regulatory obligations; (v) trading of the
Company's shares has resumed; (vi) the sale of any non-core assets
has completed; and (vii) the Company is in a position to raise
equity or debt finance.
(ii) Amendment to lease approach
In conjunction with the above, amendments are proposed to the
Investment Policy, to enable the Company to operate a leasing model
which is better aligned to the needs of Local Authorities,
Charities, Registered Providers and Housing Associations and the
needs of the underlying occupants of the properties. The table
below summarises the changes in the leasing models:
New Investment Policy Current Investment
Policy
Lease length Will vary depending on: Long leases (typically
* rent; 20 to 30 years to
expiry or first break)
* the nature of the accommodation;
* the nature of the tenant; and
* the needs of residents and the relevant local
authority
Rent review Will vary depending on the Inflation-linked or
mechanism nature of the: contain fixed uplifts
* accommodation;
* tenant; and
* requirements of any relevant local authority
Repairs and Leases will be a combination All leases to be triple
maintenance of: net, full repairing
(service charge) * triple net, full repairing and insuring leases; and and insuring leases
* leases including provision for a service charge to
cover repairs and maintenance except where repairs
and maintenance will be the responsibility of the
Company
Although this will reduce long-term inflation-linked income for
the Company, on a purely contractual basis, the Board and AEW
consider that the changes will better align the interests of Local
Authorities, Charities, Registered Providers, the Company and the
underlying occupants to provide a more sustainable long-term model
to address homelessness and other social issues, and ultimately is
expected to provide Shareholders with greater income security in
the future.
(iii) Diversifying the permitted uses of properties
The Company remains committed to contributing responsibly to
alleviating homelessness in the UK. However, with the issues faced
by the Company and the need to stabilise matters, the Investment
Manager does not wish to be constrained during the Stabilisation
Period and accordingly requires the flexibility to include any form
of residential use. During the Post-Stabilisation Period, the
Company shall invest in residential accommodation assets having any
Social Use but which are predominantly homeless accommodation
assets . By adopting a definition of Social Use real estate, the
Company expects to benefit from the full extent of demand for
specialist residential accommodation, align its provision of real
estate with underlying needs of tenants and occupiers and underpin
relationships with high-quality operators. Where it can be done
responsibly, the Company may consider letting properties to
organisations appointed by the Home Office to provide housing and
support services to asylum seekers.
By allowing greater diversification of permitted uses, the
Company expects to significantly enhance its ability to generate
sustainable cash flows and meet its on-going liabilities.
(iv) Appointment of third party specialists
To ensure properties meet the required standards of quality,
safety and compliance, the Company will (where required) appoint
specialist third-party service providers for the delivery of
repairs, refurbishment, building maintenance and health and safety.
Although there will be an additional cost for such services, it
will ultimately allow for the income from properties to be
improved.
The new investment objective and policy
Upon approval of the Proposal, the Company will adopt the
following investment objective and policy.
Investment objective
During the period beginning on 22 August 2023 (the "Effective
Date") and ending on the second anniversary of the Effective Date,
or such later date (not being later than the third anniversary of
the Effective Date) approved by the Board (the "Stabilisation
Period"), the Company will have the objective of stabilising the
Group's financial condition through initiatives to maximise income
and capital returns by investing in a portfolio of UK residential
real estate.
After the expiry of the Stabilisation Period (the
"Post-Stabilisation Period"), the Company will have the objective
of providing income and capital returns by investing in a portfolio
of UK residential real estate having any Social Use, but which are
predominantly homeless accommodation assets.
Investment policy
The Company will invest in a diversified portfolio of
residential accommodation assets.
During the Stabilisation Period , the Company shall invest in
residential accommodation assets having any form of residential
use. Whilst the Company will have regard to the Post-Stabilisation
Period investment policy, it does not want its investment manager
to be constrained during the Stabilisation Period and accordingly
wants the flexibility for its portfolio to include assets having
any form of residential use.
During the Post-Stabilisation Period , the Company shall invest
in residential accommodation assets having any Social Use but which
are predominantly homeless accommodation assets.
"Social Use" means real estate used to house vulnerable
individuals, including but not limited to those affected by any of
the following circumstances: homelessness, ex-service men and
women, individuals fleeing domestic abuse, vulnerable women, people
leaving prison, asylum seekers and refugees, foster care leavers,
substance misuse, care leavers, mental illness, disability,
specialist supported living and general needs social housing.
The Company will invest in assets directly or through holdings
in special purpose vehicles and will seek to acquire good-quality
properties, taking into account the following key investment
considerations:
-- the properties will provide good-quality accommodation;
-- each property should demonstrate strong residual land value characteristics;
-- lease lengths will vary depending on rent, the nature of the
accommodation, the nature of the tenant, the needs of residents and
the relevant local authority;
-- there will be a combination of 'triple net, full repairing
and insuring leases', leases that include a provision for a service
charge that covers repairs and maintenance and direct let assets,
where repairs will be the responsibility of the landlord; and
-- rent review mechanisms will vary depending on the nature of
the accommodation, the nature of the tenant and the requirements of
any relevant local authority.
The Company will look to appoint specialist third-party service
providers for the delivery of repairs, refurbishment, fire safety
and building maintenance services where required. Through
professionally managed relationships and contracts the Company will
look to drive cost efficiency while maintaining high standards of
quality and safety.
The Company will neither undertake any direct development
activity nor assume direct development risk. However, the Company
may invest in fixed-price forward funded developments, provided
they are pre-let to an acceptable tenant and full planning
permission is in place.
Where the Company invests in forward funded developments:
-- the Company will not acquire the land until full planning
consent and tenant pre-lets are in place;
-- the Company will pay a fixed price for the forward funded
purchase, covering land, construction cost and developer's
profit;
-- all cost overruns will be the contractual responsibility of the developer/contractor; and
-- if there is a delay to completion of the works, this will
primarily be a risk for the developer/contractor, as they will pay
the Company interest/rent until practical completion occurs.
The Company may utilise derivative instruments for efficient
portfolio management. The Company may engage in full or partial
interest rate hedging or otherwise seek to mitigate the risk of
interest rate increases as part of the Company's portfolio
management.
The Company will not invest in other investment funds.
Investment restrictions
The Company will invest and manage its assets with the objective
of spreading risk. In order to achieve a portfolio that is
diversified by property, tenant and location, the Company will be
subject to the following investment restrictions:
-- during both the Stabilisation Period and the
Post-Stabilisation Period, the value of no single property, at the
time of acquisition, will represent more than 5 per cent. of the
higher of: (i) Gross Asset Value; or (ii) where the Company is not
fully geared, Gross Asset Value adjusted on the assumption that the
Company's property portfolio is geared at 35 per cent. loan to
value;
-- during the Post-Stabilisation Period, the aggregate maximum
exposure to any one tenant will not be greater than 15 per cent. of
the higher of: (i) Gross Asset Value; or (ii) where the Company is
not fully geared, Gross Asset Value adjusted on the assumption that
the Company's property portfolio is geared at 35 per cent. loan to
value;
-- during the Stabilisation Period, the aggregate maximum
exposure to any one tenant will not be greater than 30 per cent.
(the "Percentage Cap") of the higher of: (i) Gross Asset Value; or
(ii) where the Company is not fully geared, Gross Asset Value
adjusted on the assumption that the Company's property portfolio is
geared at 35 per cent. loan to value; other than in exceptional
circumstances where, with the consent of the Board, the Percentage
Cap may be increased from 30 per cent. to 50 per cent. in respect
of one tenant only (the "Relevant Tenant") for a period of no more
than 18 months (the "Relevant Period"). The Relevant Period shall
begin on the day that the Percentage Cap is increased above 30 per
cent. for the Relevant Tenant and shall expire after 18 months or,
if earlier, the first day following the start of the Relevant
Period on which the aggregate maximum exposure to the Relevant
Tenant is equal to or less than 30 per cent. of the higher of: (i)
Gross Asset Value; or (ii) where the Company is not fully geared,
Gross Asset Value adjusted on the assumption that the Company's
property portfolio is geared at 35 per cent. loan to value. On
expiry of the Relevant Period, the Percentage Cap shall return to
30 per cent. for the Relevant Tenant and the aggregate exposure to
such tenant shall be reduced in accordance therewith. For the
purpose of this investment restriction, "exceptional circumstances"
shall mean circumstances where the Company's investment manager
considers it necessary to take emergency action in the best
interests of the Company and occupants of the Group's properties,
requiring the Group to enter into one or more new leases in respect
of existing properties in the Group's portfolio;
-- during both the Stabilisation Period and the
Post-Stabilisation Period, the aggregate maximum exposure to
properties located within the boundary of any one local authority
will not be greater than 15 per cent. of the higher of: (i) Gross
Asset Value; or (ii) where the Company is not fully geared, Gross
Asset Value adjusted on the assumption that the Company's property
portfolio is geared at 35 per cent. loan to value;
-- during both the Stabilisation Period and the
Post-Stabilisation Period, the aggregate maximum exposure to
forward funded developments will not be greater than 20 per cent.
of the higher of: (i) Gross Asset Value; or (ii) where the Company
is not fully geared, Gross Asset Value adjusted on the assumption
that the Company's property portfolio is geared at 35 per cent.
loan to value; and
-- during both the Stabilisation Period and the
Post-Stabilisation Period, the aggregate maximum exposure to any
single contractor in connection with any forward funded
developments will not be greater than 10 per cent. of the higher
of: (i) Gross Asset Value; or (ii) where the Company is not fully
geared, Gross Asset Value adjusted on the assumption that the
Company's property portfolio is geared at 35 per cent. loan to
value.
The investment limits detailed above will be calculated at the
time of investment, which includes entering into a new lease, using
the last published Gross Asset Value. For the avoidance of doubt,
the Company will not be required to divest any of its investments
should, after the time of investment, such an investment cease to
adhere to the limits set out in the investment policy (whether due
to changes in the value of investments or any other reason not
relating to an active investment decision).
The Directors are focused on delivering capital growth over the
medium term and intend to reinvest net proceeds from future
potential disposals in assets in accordance with the Company's
investment policy, unless a decision is made to apply such net
proceeds towards the Group's operating costs, capital expenditure
or the reduction of the Group's indebtedness. However, should the
Company fail to re-invest the proceeds or part proceeds from any
disposal, or to apply such proceeds towards the Group's operating
costs, capital expenditure or the reduction of the Group's
indebtedness, within 12 months of receipt of the net proceeds, the
Directors intend to return those proceeds or part proceeds to
Shareholders in a tax efficient manner as determined by the
Directors from time to time.
Cash held for working capital purposes or received by the
Company pending reinvestment or distribution will be held in
sterling only and invested in cash, cash equivalents, near cash
instruments and money market instruments.
The Directors currently intend at all times to conduct the
affairs of the Company so as to enable it to qualify as a REIT for
the purposes of Part 12 of the CTA 2010 (and the regulations made
thereunder).
The Company will at all times invest and manage its assets in a
way that is consistent with its objective of spreading investment
risk and in accordance with its published investment policy and
will not at any time conduct any trading activity which is
significant in the context of the business of the Company as a
whole.
Borrowing policy
The Company may seek to utilise borrowings to enhance equity
returns.
The level of borrowing will be on a prudent basis for the asset
class and will seek to achieve a low cost of funds, whilst
maintaining flexibility in the underlying security requirements and
the structure of the Company.
The Directors intend that the Company will maintain a
conservative level of aggregate borrowings with a maximum level of
aggregate borrowings of 35 per cent. of the Company's Gross Asset
Value at the time of drawdown of the relevant borrowings.
Debt will be secured at the asset level and potentially at the
Company or SPV level, depending on the optimal structure for the
Company and having consideration to key metrics including lender
diversity, debt type and maturity profiles.
In the event of a breach of the investment policy and investment
restrictions set out above, the Directors upon becoming aware of
such breach will consider whether the breach is material, and if it
is, notification will be made to a Regulatory Information
Service.
No material change will be made to the investment policy without
the approval of Shareholders by ordinary resolution at a general
meeting, which will also be notified by an RIS announcement.
Benefits of the Proposal
The Directors believe that the Proposal will have the following
benefits for Shareholders:
-- ensuring the Company is able to continue to operate in the
sector and preserve its longer-term social objective of helping to
alleviate homelessness in the UK;
-- aligning the investment policy with the demands and needs of
the underlying occupants and with Local Authorities, Charities,
Registered Providers and Housing Associations, particularly in
respect of lease terms, and therefore providing for a long-term
stable business model;
-- provides the flexibility to stabilise the Company's financial
position, with a longer-term focus on maximising income and capital
returns from the existing portfolio of assets; and
-- allowing the flexibility to explore demand for all
residential uses in the Stabilisation Period and from other Social
Use occupier groups.
Considerations associated with the Proposal
Shareholders should have regard to the following when
considering the Proposal:
-- Should the Company not receive Shareholder approval for the
Proposal, the appointment of AEW as AIFM and Investment Manager
will not take effect and the Board will need to consider an
alternative strategy.
-- There is no guarantee that the changes to the Company's
investment policy will provide the returns sought by Shareholders.
There can be no guarantee that the Company will achieve its
investment objective or target returns to Shareholders.
-- At the time of the Company's IPO, the Company adopted a
dividend policy whereby a target dividend of 5.5 per cent. (based
on the IPO issue price) would be paid to Shareholders. During the
Stabilisation Period it will be necessary to evaluate the long-term
sustainable income profile of the portfolio and the level of
dividend that can be paid. However, it will remain an objective for
the Company to pay a regular and sustainable quarterly dividend
supported by income, through the revised lease model, that should
be attractive to Shareholders, although it is not possible to
comment on a target dividend amount or the timing for recommencing
dividends at this stage.
-- The Company's shares were suspended from trading as a result
of not being able to publish the annual report and accounts for the
year ended 31 August 2022. The Company is in constructive dialogue
with the Financial Conduct Authority regarding restoration of
trading, which will depend, amongst other things, on the
publication of the Company's annual report for the year ended 31
August 2022 and half-yearly report to 28 February 2023.
-- The adoption of the New Investment Policy, as well as the
appointment of JLL as property valuer, are key steps in AEW's
immediate priorities to stabilise the Company's financial position,
as the Board, AEW and Bill Starn, the highly experienced turnaround
CFO appointed as a consultant to the Company, work towards the
completion of the annual and interim accounts and the restoration
of trading in the Company's shares.
Recommendation
The Board considers that the Proposal is in the best interests
of the Company and its Shareholders as a whole. Accordingly, the
Board unanimously recommends that Shareholders vote in favour of
the Resolution to be proposed at the General Meeting. The Directors
intend to vote in favour of the Resolution in respect of their
holdings of Ordinary Shares, amounting to 151,000 Ordinary Shares
in aggregate (representing approximately 0.01 per cent. of the
issued share capital of the Company as at the date of this
announcement).
Further details of the New Investment Policy, additional
information on the appointment of AEW and the formal notice
convening the General Meeting are set out in the Circular which
will be posted to Shareholders today. Copies will shortly be
available for inspection on the Company's website,
https://www.homereituk.com/ , and at the National Storage
Mechanism, which is located at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .The person
responsible for arranging the release of this announcement on
behalf of the Company is FTI Consulting.
FOR FURTHER INFORMATION, PLEASE CONTACT:
For Home REIT:
Smith Square Partners (Financial
Adviser)
John Craven
Toby Rolls +44 (0)20 3696 7260
FTI Consulting (Communications HomeREIT@fticonsulting.com
Adviser) +44 (0)20 3727 1000
Dido Laurimore
Eve Kirmatzis
Ellie Perham-Marchant
Oliver Harrison
F or AEW:
AEW
Stefano Bassi, AEW stefano.bassi@eu.aew.com
FTI Consulting
Richard Sunderland richard.sunderland@fticonsulting.com
The Company's LEI is: 213800A53AOVH3FCGG44.
For more information, please visit the Company's website:
www.homereituk.com
Inside Information
The information contained within this announcement is deemed by
Home REIT to constitute inside information as stipulated under the
Market Abuse Regulation (EU) no. 596/2014 (as it forms part of
domestic law by virtue of the European Union (Withdrawal) Act
2018). On the publication of this announcement via a Regulatory
Information Service, this inside information is now considered to
be in the public domain.
Disclaimer
Smith Square Partners LLP ("Smith Square"), which is authorised
and regulated in the United Kingdom by the Financial Conduct
Authority, is acting for Home REIT and no one else in connection
with the matters set out in this Announcement. In connection with
such matters, Smith Square will not regard any other person as its
client and will not be responsible to any persons other than Home
REIT for providing the protections afforded to clients of Smith
Square, or for providing advice in relation to the contents of this
announcement or any other matter referred to herein. Smith Square
does not owe or accept any duty, liability or responsibility
whatsoever (whether direct, indirect, consequential, whether in
contract, in tort, under statute or otherwise) to any person who is
not a client of Smith Square in connection with this announcement,
in any statement contained herein or otherwise.
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