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.

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

 

 

 

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FOR FURTHER INFORMATION, PLEASE CONTACT:

 

 

The Company's LEI is: 213800A53AOVH3FCGG44.

 

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