REG - Home REIT PLC - Property Valuation and Portfolio Update

Home ReitAnnouncement

20/12/2023 07:15

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RNS Number : 3800X  Home REIT PLC  20 December 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

 

20 December 2023

 

Home REIT plc

 

Property valuation and portfolio update

 

Home REIT plc (LSE: HOME) ("HOME" or the "Company"), today announces an
updated property valuation and associated property portfolio update.

 

On 28 July 2023, the Company announced that Jones Lang LaSalle Limited ("JLL")
had been appointed to carry out a valuation of the portfolio as at 31 August
2022, 28 February 2023 and 31 August 2023 on the basis of Fair Value.  In
addition, the Company announced that Vibrant Energy Matters Limited
("Vibrant"), a subsidiary of Connells Limited ("Connells"), had been appointed
to inspect all properties and report on condition, and that Countrywide
Surveyors Limited ("Countrywide"), also a subsidiary of Connells, had been
appointed to provide building surveys in respect of required repairs and
refurbishment on a selection of the Company's properties.

 

Following the substantial completion by JLL of external inspections of 2,391
properties, comprising 97 per cent. of the Company's property portfolio, in
addition to 195 internal inspections, together with the preliminary findings
of the inspections of both Vibrant and Countrywide, the former of which has
completed 884 internal inspections, JLL has today issued the Company with its
draft valuation reports on the Company's property portfolio. 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 2023  31 August 2022
 Number of properties  2,473           2,473             2,239
 Portfolio valuation   £412.9m         £422.9m           £414.4m

 

 

The Board of the Company acknowledges that there has been a very material
reduction in the valuation of the Company's property portfolio with the August
2023 valuation representing 42.26% of the unaudited historical acquisition
costs of £977.0m (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 have gone into liquidation in 2023.

The majority of properties are now valued on a vacant possession basis and
where a valuation has continued to be prepared on an investment basis,
limitations on the duration of the income streams have been applied to account
for the covenant strengths of the tenants, and the  rent levels demanded
under the leases. In all cases, JLL has considered the rental value for the
existing uses of the properties and Local Housing Allowance rates.

 

The comprehensive inspection programme has also led to a significant
re-assessment of the quality of the property assets. This has resulted in many
properties found to be in need of extensive renovation before they can be
occupied or properties that may need to be reconfigured to provide an
appropriate number of rooms to suit the local market.  JLL has considered the
quality of the assets in reaching its assessment of value.

 

In addition to the above, the valuation of the assets has also been impacted
by a deterioration in the housing market and an increase in property yields
more generally following a rise in interest rates.

 

                                                                     31 August 2023  28 February 2023  31 August 2022
 Number of properties owned                                          2,473           2,473             2,239
 Percentage of the portfolio valued on a vacant possession basis(1)  88%             68%               39%
 Percentage of the portfolio valued at investment value              12%             32%               61%

 

(1) The difference between the percentage of properties valued on a vacant
possession basis for 31 August 2023, 28 February 2023 and 31 August 2022,
reflects the assessment of the tenant covenant strength as indicated by
prevailing data available at the respective periods.

 

Additional property information

 

Initial evidence from AEW's ongoing asset management initiatives indicates a
larger than expected proportion of the portfolio is private rented sector
("PRS") rather than homeless accommodation backed by exempt rents from local
authorities.  As AEW works to stabilise and assume direct control of the
portfolio, the Company expects to quantify a higher proportion of PRS but is
unable to provide definitive percentages at this stage.    It is worth
noting however, that the occupiers of these properties 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.

As part of the stabilisation strategy, AEW has been undertaking 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 the
prospects for income and capital returns prospects as AEW works to rationalise
and re-tenant the portfolio.

The valuation report for the August 2023 period is a key step in the
stabilisation strategy, and 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 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.

 

Lynne Fennah, Chair of Home REIT, commented:

"The Board is extremely disappointed by the significant value reduction
announced today which reflects the information that has come to light
regarding the quality of the Company's assets and tenants. This information is
in contradiction to reporting provided to the Board during these periods.
The Company reserves all of its rights in respect of the matters referred to
in today's announcement and is still considering the conclusions and
implications of the revaluation exercise with its advisers, and what
consequential actions it may take.(1)

"The publication of the Company's portfolio valuation marks an important step
in the stabilisation strategy and ongoing work being done to publish the
Company's annual results for the periods ending 31 August 2022 and 31 August
2023."

(1) The Company does not wish to prejudice its position in respect of any
further action which may follow and so is unable to comment further at this
time.

 

 

FOR FURTHER INFORMATION, PLEASE CONTACT:

 

 FTI Consulting (Communications Adviser)  HomeREIT@fticonsulting.com

 Dido Laurimore                           +44 (0)20 3727 1000

 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
(http://www.homereituk.com/)

 

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