Home REIT has appointed AEW as its new manager as the company looks to turn around its fortunes after a series of damaging revelations involving malpractice and allegations of fraudulent activity.
The board has entered into an agreement with AEW UK Investment Management LLP under which, effective immediately, AEW will act as the company’s property adviser. AEW will become the investment manager and Alternative Investment Fund Manager (AIFM) to the company.
AEW’s selection follows a competitive process in which the board received seven proposals and conducted detailed discussions and negotiations with three short-listed parties.
The board said that AEW was selected based on its expertise both in property, including managing residential for rent, and in managing listed funds, as well as its depth of immediately available resource, the strength of its network in the real estate marketplace, and its experience in taking on investment management mandates.
Background on AEW
AEW is part of the AEW group, which has £74.5bn of assets under management globally as at 31 December 2022. AEW is the investment manager of AEW UK REIT plc, AEW UK Real Return Fund and AEW UK Core Plus Property Fund, in addition to a number of separate account mandates. It represents the real estate asset management platform of Natixis Investment Managers, one of the largest asset managers in the world, with £980bn of assets under management as at 31 December 2022.
Immediate priorities and proposed amendments to investment policy
AEW’s immediate priorities will be to undertake a thorough review of the company’s assets to help inform a longer-term strategy for the portfolio, as well as dealing with a number of short-term requirements, including preparing for the potential sale of a limited number of properties and engaging with the company’s current tenant base regarding issues with their properties that were previously unaddressed, while improving rent collection efficiency.
For the quarter ended 30 November 2022, only 23% of rent had been collected. This dropped to just 13% for the five months ended 30 April 2023 (£3.4m collected from £25.9m billed).
The board intends to write to shareholders setting out the proposed changes to the company’s investment policy, which will include enabling the company to enter into shorter-term leases with tenants, and details of how shareholder approval will be sought.
Terms of appointment
Following its appointment as property adviser (and until its appointment as AIFM), AEW will be entitled to a property advisory fee of £3m per annum. During the first two years of its appointment as AIFM, AEW will be entitled to a fixed base asset management and AIFM fee of £3m per annum (increasing annually in line with inflation by a maximum of 5% per annum). It will also be entitled to a variable management fee for disposals of £422 per bed for every property sold and a variable management fee to incentivise rent collection of 10% of all rent collected, subject to an aggregate cap of £10m for the initial period of two years.
Following the initial two year period, AEW will revert to an investment management fee equal to 0.75% of NAV per annum on an ongoing basis, subject to a minimum fee of £3m per annum (increasing annually in line with inflation by a maximum of 5% per annum).
This compares with a management fee of approximately £7m per annum that would have been payable to Alvarium Home REIT Advisors Limited under the existing investment advisory agreement.
Under certain circumstances, including a takeover of the company completing during the initial period (which would cause the investment management agreement to be terminated), AEW will be entitled to receive a termination payment of £9m.
Other information announced
- As at 19 May 2023, the company had a cash balance of £18.9m. The company’s cash balance reflects the repayment of £30m of cash held in a restricted account to its lender, as announced on 5 April 2023.
- Home REIT has agreed terms with Bill Starn, a highly experienced turnaround CFO, as a consultant to the company. Following AEW’s appointment as Investment Manager, he is expected to transfer as a consultant to the AEW team.
- The Company has been given six months’ notice by its property valuer, Knight Frank, such that Knight Frank’s contract to provide valuation services to the Company will terminate from 3 November 2023. AEW will assist the board with the selection and appointment of a new property valuer.
Lynne Fennah, chairman of Home REIT, said: “The appointment of a new Investment Manager is an important step. AEW brings deep fund management and property expertise that will be critical in enabling the Company to stabilise its property portfolio, maintain its mission of providing accommodation to vulnerable people and maximise value for shareholders. The Board has run a thorough process to enable it to make this change in Investment Manager. AEW has undertaken detailed diligence before taking on the mandate and is well placed to hit the ground running. I am delighted with the appointment and look forward to working together.”
Nick Winsley, head of AEW UK, said: “We are committed to working with Lynne and the Board to protect the interests of all of Home REITs stakeholders, shareholders, the Company’s lender and the residents. While our immediate priority will be to address a number of short-term requirements, we will also undertake a thorough review of the Company’s assets that will allow us to formulate a longer-term strategy for the entire portfolio, which we will propose to the Board in due course.”
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