REG - Home REIT PLC - Notice of General Meeting

Home ReitAnnouncement

28/07/2023 07:00

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RNS Number : 4827H  Home REIT PLC  28 July 2023

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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 £8.77m 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 20 to 30 years to expiry or first break)

                                           ·      rent;

                                           ·      the nature of the accommodation;

                                           ·      the nature of the tenant; and

                                           ·     the needs of residents and the relevant local authority

 Rent review mechanism                     Will vary depending on the nature of the:                                       Inflation-linked or contain fixed uplifts

                                           ·      accommodation;

                                           ·      tenant; and

                                           ·  requirements of any relevant local authority

 Repairs and maintenance (service charge)  Leases will be a combination of:                                                All leases to be triple net, full repairing and insuring leases

                                           ·   triple net, full repairing and insuring leases; and

                                           ·      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/ (https://www.homereituk.com/) , and at
the National Storage Mechanism, which is located
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(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)  +44 (0)20 3696 7260

 John Craven

 Toby Rolls

 

 FTI Consulting (Communications Adviser)  HomeREIT@fticonsulting.com

 Dido Laurimore                           +44 (0)20 3727 1000

 Eve Kirmatzis

 Ellie Perham-Marchant

 Oliver Harrison

 For 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
(http://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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