REG - Home REIT PLC - Annual Financial Report

Home ReitAnnouncement

11/10/2024 07:00

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RNS Number : 7870H  Home REIT PLC  11 October 2024

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

 

11 October 2024

Home REIT plc

("Home REIT" or the "Company")

 

2022 Annual Report and Accounts

 

Home REIT's Annual Report and Accounts for the year to 31 August 2022 is today
being made available to shareholders and published on its website at
https://www.homereituk.com/ (https://www.homereituk.com/) .  The Report has
also been submitted to the Financial Conduct Authority's National Storage
mechanism and will be available shortly for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .

Michael O'Donnell, Chair of Home REIT, said:

"Whilst the Board is pleased to finally be in a position to publish the Report
and Accounts we share shareholders' frustrations about the progress of the
Company.

"Despite substantial efforts to stabilise the business, the Company continues
to face extensive financial and operational challenges. Against this backdrop
and reflecting the expected reduced size of the Company's portfolio, the Board
concluded that the best course of action to optimise remaining shareholder
value is the Managed Wind-Down.

"Our priority now is to optimise the value of the portfolio and maximise
returns to shareholders, while keeping any disruption to residents to an
absolute minimum. Despite the challenges faced by the Company, the work
undertaken over the past 12 months by AEW, including asset management
initiatives to enhance value, regaining control of most properties and rolling
out a re-tenanting programme, has created a portfolio that, while subscale to
continue as a standalone quoted entity, represents an attractive investment
opportunity for investors seeking to enter the supported living and private
rented sectors.

"It should be noted however that the fees incurred in defending the Company
against threatened litigation from a group of current and past shareholders
will directly reduce the amount of capital ultimately returned to all
shareholders and may impact the timing of any distribution to shareholders.

"I also would again like to thank shareholders for their ongoing patience and
support as we strive to address, and seek redress for, the issues facing the
Company."

In summary as previously announced, the Group has faced unprecedented
challenges including:

·      investigations into allegations of wrongdoing;

·      substantial tenant arrears;

·      tenant liquidations;

·      the termination of Alvarium Home REIT Advisors Limited ("AHRA")
as the Company's Investment Adviser and Alvarium Fund Management Limited
("Alvarium FM") as the Company's alternative investment fund manager ("AIFM");

·      suspension of its shares;

·      a potential threatened group litigation action against the
Company and the directors in office at the time that the shares were
suspended;

·      the demand by the Company's lender, Scottish Widows, for the
repayment of its loans;

·      the appointment of a new valuer;

·      a comprehensive property inspection programme;

·      the commencement of an FCA investigation into the Company; and

·      substantial delays to the publication of the Group's annual
reports.

Financial results

With regards to the Annual Report and Accounts for the financial year ending
31 August 2022 ("FY22") the Company has restated the 2021 comparative period
in the 2022 Annual Report and Accounts.   The 2022 Annual Report and
Accounts reflect a substantial loss and decrease in NAV for the period, the
principal causes of which are outlined in the post-balance sheet activities
and findings in the relevant sections of the Annual Report:

·      Net asset value (NAV) increased from £247.9 million (restated as
at 31 August 2021) to £345.9 million as at 31 August 2022. However, once the
net proceeds from the share issuance during the period of £601.2 million are
considered, NAV decreased by £503.2 million from the restated August 2021 NAV

·      NAV per share reduced by 57.5% to 43.76 pence (2021 restated:
103.03 pence)

·    This resulted in a loss before tax of £474.8 million (restated
period to 31 August 2021: £16.1 million profit before tax)

Background to the publication of the results

As non-executive directors of an externally managed investment company, the
Board relies upon information reported to it by its investment adviser, AIFM
and other external parties including information regarding the quality of the
Group's assets and tenants.  During the financial period ending 31 August
2021 ("FY21") and FY22, AHRA was the appointed investment adviser and Alvarium
FM was the appointed AIFM. Subsequent to the period end, material information
came to light which was in contradiction to the reporting provided to the
Board during the FY22 period. The Directors have provided as much detail as
they are able to within the Annual Report in order to provide a true and fair
view of the financial statements. However, in preparing the financial
statements, a number of judgements/assumptions have had to be made by the
Directors, further detail on which is provided in the notes to the
Consolidated Financial Statements.

The FY22 audited accounts were initially delayed, following the publication of
a report and allegations from third parties, to allow the Group's auditor, BDO
LLP ("BDO"), to undertake additional audit procedures in respect of FY22, and
for the Board to instruct Alvarez & Marsal Disputes and Investigations LLP
("A&M") to conduct an investigation into allegations of wrongdoing.
Without waiver of legal privilege, the key findings of the investigation were
that arrangements for refurbishment of properties, settlement of rent arrears
and arrangements with tenants had not been brought to the Board's attention by
AHRA.  Following initial challenge from BDO resulting from their standard
audit procedures and having considered the findings of the A&M report on
the investigation, the Board took the decision to review the accounting
treatment for acquisitions and revenue recognition and determined that revised
accounting policies were required to appropriately account for the substance
of historical acquisitions and lease contracts.

The Board determined it was necessary to apply the revised accounting policies
back to inception, review all historical acquisition and lease documentation;
instruct third parties to undertake an internal inspection programme to
determine the condition of the properties; and appoint Jones Lang LaSalle
Limited ("JLL") to undertake valuations of the Group's entire property
portfolio, on the basis of fair value as at 31 August 2022.  The application
of revised accounting policies back to inception has resulted in the
restatement of the 2021 comparatives in the accounts.

The Company intends to bring legal proceedings against those parties it
considers responsible for wrongdoing.  The Company issued pre-action letters
of claim to Alvarium FM and AlTi RE Limited on 12 April 2024 and to AHRA on
29 May 2024.

A pre-action letter of claim has been sent to the Company by Harcus Parker
Limited on behalf of a group of current and former shareholders of the
Company. No legal proceedings have been issued at this stage. The Company has
issued a comprehensive response to this pre-action letter and correspondence
is continuing between the parties. The Company intends vigorously to defend
itself in respect of the threatened litigation and has denied the allegations
made against it.

Legal fees associated with the company's challenges currently stand at
approximately £5.0 million, a significant proportion of which has been
incurred to defend the threatened litigation. All fees incurred as a result of
defending the Company against this claim will reduce the end amount returned
to shareholders.

Managed wind-down

The Company's lender, Scottish Widows, previously notified the Company that
its objective is for full repayment of its £250 million loan balance by 31
December 2024, which now stands at £72.0 million (30 September 2024) after
repayment following property sales. As previously announced, the Company was
unable to secure a refinancing of this debt facility on terms it could
recommend to shareholders and following a review of options available, the
Board proposed changes to the Company's investment policy in order to
implement a managed wind-down strategy.  Overwhelmingly approved by
shareholders on 16 September 2024, this strategy is intended to allow the
Company to realise all the assets in its property portfolio in an orderly
manner with a view to repaying borrowings and making timely returns of capital
to shareholders whilst aiming to optimise the value of the Company's assets.
However, as previously disclosed, the ability of the Company to make
distributions to shareholders may be constrained whilst the Company faces
shareholder litigation and an FCA investigation.

Financial Results subsequent periods

The audited results for the year ended 31 August 2023, along with the interim
results for the periods to 28 February 2023 and 29 February 2024 respectively,
have been prepared in parallel (the "Historical Accounts"). The Group intends
to publish Historical Accounts before the end of 2024 and the audited annual
results for the year ended 31 August 2024 will follow as soon as is
practicable thereafter.

 

Shareholder webcast

 

The Company will host a live webcast for shareholders on the 2022 Annual
Report and Accounts on Monday 28 October at 10.00am GMT. For details of how to
register and to submit questions in advance, please contact
HomeREITEvents@fticonsulting.com (mailto:HomeREITEvents@fticonsulting.com) by
12 noon on Thursday 24 October.

 

FOR FURTHER INFORMATION, PLEASE CONTACT:

 

 FTI Consulting (Communications Adviser)  HomeREIT@fticonsulting.com

 Dido Laurimore                           +44 (0)20 3727 1000

 Bryn Woodward

 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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