REG - Home REIT PLC - Proposed managed wind-down strategy

Home ReitAnnouncement

16/07/2024 07:00

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RNS Number : 4913W  Home REIT PLC  16 July 2024

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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

FOR IMMEDIATE RELEASE

 

16 July 2024

 

Home REIT plc

("Home REIT" or the "Company")

 

Proposed implementation of a managed wind-down strategy

 

On 17 June 2024, the Company announced that it had been unable to secure a
re-financing of its existing debt facility on terms that it could recommend to
shareholders, despite extensive and advanced discussions with a potential
lender. The re-financing of the debt was a key component of the continued
advancement of the stabilisation strategy adopted in August 2023. As the
re-financing had not been possible, the Company also announced that it was
considering a number of options both to re-pay the outstanding debt and
provide an optimised resolution for shareholders, which may include a more
extensive realisation strategy.

The Board and AEW UK Investment Management LLP ("AEW") continue to engage with
Scottish Widows Limited ("Scottish Widows"), which has advised that its
objective is for repayment of the loan balance in the short term and by no
later than 31 December 2024. In addition, and as announced on 3 July 2024,
Scottish Widows has revised the terms of the additional fee payable by the
Company and charged on the outstanding loan amount, such that this will
increase from 5.0 per cent to 7.0 per cent per annum until repayment of the
loan. As of 30 June 2024, the Company had accrued £6.6m for the additional
unpaid fees being charged since August 2023.

As at 30 June 2024, the Company's total borrowings have been reduced from
£220.0m to £114.6m, which will be further reduced by the proceeds of the
property sales which have exchanged but are yet to complete which total
approximately £24.5m.

Since its appointment, AEW has undertaken extensive and detailed steps to
improve the viability and performance of the Company's assets and thereby
providing a firmer platform for its operations.  This has involved
substantial tenant engagement, the removal of non-performing tenants, the
appointment of property managers and re-tenanting of assets where appropriate.
Following these activities, the Company has gained control of the majority of
properties, enabling future liquidity. In addition, c.90 per cent of the
property portfolio has been subject to internal inspection either by AEW, JLL,
Vibrant and property managers, significantly improving the level of data on
the portfolio. Analysis of the underlying condition and occupation of the
properties is paramount to determine suitability, capital expenditure
requirements and income and capital returns prospects for each asset and
enables strategies to be put in place to drive an improvement in rental
collection going forwards. On the corporate side, updated draft valuation
reports have been produced as part of the process to produce the financial
results for past periods and achieve a restoration of trading of the Company's
shares. The Company's audited results for the year ended 31 August 2022 are
substantially complete and are expected to be published during August 2024.

The Board has conducted a full review of the stabilisation strategy and whilst
it recognises that there is an opportunity to add value to the portfolio at a
property level, it has concluded that this strategy faces considerable
challenges. These include a high fixed corporate cost base, required due to
the REIT structure and as a result of the issues being dealt with by the
Company at this time, and the requirement for capital expenditure to drive an
increase in rental value and valuation of the portfolio. In addition, the
Board is aware that the size of the vehicle following the repayment of debt
may be considered too small by many investors when considering its future as a
listed REIT.

As a result of these factors, and having carefully considered the range of
options available for the Company, the Board has concluded that it is in the
best interests of shareholders to propose a managed wind-down strategy for the
Company (the "Managed Wind-Down"), pursuant to which the assets of the Company
would be sold with the objectives of optimising remaining shareholder value
and repaying the Company's loan balance.

It has been clear from consultation with key shareholders, and the feedback
received following the announcement on 17 June 2024, that there is significant
support for a realisation strategy and the return of capital to shareholders
when the Company is able to do so.

The implementation of the proposed Managed Wind-Down will require a change to
the Company's investment policy. Accordingly, the Company intends to publish a
circular to shareholders (the "Circular") in the coming weeks in order to
convene a general meeting at which it will seek approval from shareholders to
amend the Company's investment objective and policy. The Circular will also
provide additional detail on the approach to realisation that the Company will
intend to follow to implement the proposed new strategy.

 

Approach to the Managed Wind-Down

It is expected that the Company, via its investment manager AEW, will adopt a
broad and managed approach to the disposal of assets, with a view to
optimising value for shareholders. Although it will be necessary to realise a
proportion of the property portfolio (the "Portfolio") before 31 December 2024
to meet the requirements of Scottish Widows and repay the outstanding debt,
sales will otherwise be structured and executed to achieve best value and to
minimise disruption to the underlying occupiers of the properties. A decision
on the preferred method of disposal will be determined by a number of factors,
including property condition, location, tenant type, and lease terms.

 

During the Managed Wind-Down, asset management initiatives will be focused on
adding value to properties and preparing them for sale to maximise liquidity.
In addition, given the Company's originally stated objective of providing
accommodation for the homeless, the realisation process will be managed in a
way to minimise impact and disruption to underlying, vulnerable occupiers. In
that respect, as previously announced, a larger than expected proportion of
the portfolio is private rented sector ("PRS") rather than homeless
accommodation backed by exempt rents from local authorities.

 

The Company will continue to provide regular updates during the Managed
Wind-Down, however this, and the level of disclosure included, will be
reviewed throughout the process in order to protect the Company's commercial
interests and allow disposals to be completed in a manner that preserves
shareholder value.

 

Return of capital to shareholders

It is the intention of the Board that capital will be returned to shareholders
upon the completion of the realisation strategy and following the repayment of
the Company's outstanding debt facilities. However, shareholders should be
aware that the ability of the Company to make distributions to shareholders
will be constrained whilst the Company faces potential group litigation and an
FCA investigation. At present, the Board is unable to assess properly its
ability to make distributions under the applicable legal requirements. In
addition, the Company expects to retain capital to meet corporate costs and
allow it to pursue legal action against those it considers responsible for
wrongdoing.

The most appropriate timing and mechanism to return capital to shareholders
will be determined in due course.

Financial statements and restoration of listing

As previously announced, the Company's audited results for the year ended 31
August 2022 are expected to be published during August 2024. The audited
results for the year ended 31 August 2023 have been prepared in parallel and,
along with interim results for the periods to 28 February 2023 and 2024
respectively, are expected to be published during the third quarter. Following
publication of all outstanding financial information, the Company is then able
to apply to the FCA for a restoration of its listing and the recommencement of
trading on the London Stock Exchange.

Further details regarding the expected timetable for restoration of listing
will be announced upon publication of the above financial information and the
Company expects to engage with shareholders ahead of this important event.

Shareholder communications

The Board, together with AEW, will provide a presentation to shareholders via
a live webcast following publication of the Circular.

The presentation, which will only be open to shareholders of the Company, will
also provide an update on the activities that AEW has undertaken in respect of
the Company's property portfolio, as well as an overview of ongoing
workstreams. There will also be an opportunity for shareholders to ask
questions.

A further update on timing will be provided in due course.

 

Michael O'Donnell, Non-Executive Chairman of Home REIT, said:

 

"It is clear that Home REIT continues to face extensive challenges, including
in respect of its debt position and pursuing and defending litigation action,
and responding to an FCA investigation. Against this backdrop and the expected
reduced size of the Company's portfolio, following an extensive review the
Board has concluded that the best course of action for shareholders is to
propose a managed wind-down strategy. I would like to thank shareholders for
their ongoing patience and support through the stabilisation process as we
strive to address, and seek redress for, the issues facing the Company."

 

The person responsible for arranging the release of this announcement on
behalf of the Company is FTI Consulting.

 

 

FOR FURTHER INFORMATION, PLEASE CONTACT:

 

 FTI Consulting (Communications Adviser)  HomeREIT@fticonsulting.com

 Dido Laurimore                           +44 (0)20 3727 1000

 Eve Kirmatzis

 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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